Prices were rising rapidly, products were scarce, and the Omicron variant chilled the country at the start of the year. All the while, American consumers have continued to spend.
Retail sales rose 3.8% in January from the previous month, the Commerce Department reported on Wednesday, a faster-than-expected rebound after a sharp drop in December and another sign of the economy’s resilience. , even as stores shortened their hours or closed as a spike in Covid-19 infections led to widespread staff shortages. Wednesday’s sales data echoed a report that showed hiring was stronger than expected last month, with employers adding 467,000 jobs.
Other factors were also at play, including rapidly rising prices. Retail sales data has not been adjusted for inflation, and that could continue to boost sales numbers for months to come, economists said. But the overall result was still that consumer spending held up last month.
“We are seeing a strong rebound to start the year, suggesting positive momentum for now, despite high prices,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics.
Consumer spending accounts for the bulk of economic activity in the United States, and the report came at a critical time for the economy, as the Federal Reserve focuses on fighting inflation rather than the growth support. The central bank is expected to raise interest rates as early as next month, and rising borrowing costs could dampen consumer and business spending.
Other factors could also dampen spending. An expansion of the Child Tax Credit – through which the government deposited up to $300 per child into the bank accounts of eligible Americans each month – ended earlier this year, and although consumers no have not yet been deterred by inflation, there have been signs that it is beginning to wear them down. A measure of consumer sentiment released this month – the University of Michigan Consumer Sentiment Index – showed the worst long-term economic outlook in a decade.
“I think it’s a matter of time before there’s a pullback in terms of consumer pushback, and that’s something we need to include in our estimates,” Ms Farooqi said.
Some of January’s sales surge was likely due to one-time factors like a restocking of shelves that emptied last year, said Beth Ann Bovino, chief U.S. economist at S&P Global. With more products available for purchase, spending has increased, she said.
Another was that people use gift cards in January after receiving them as Christmas presents. Gift card sales don’t show up in the data until they’ve been redeemed, she said.
“If they get it on December 25, they’ll probably pull it off in January when they’re done with their festivities,” Ms. Bovino said, noting that buyers may be more forgiving of higher prices when “buying with other people”. money.”
Additionally, spending patterns have become less predictable during the pandemic, complicating efforts to predict what will happen next. Before the pandemic, holiday shopping would boost retail sales in December, and a slowdown in spending would be reflected in January. This year’s gain followed a decline in December that was revised to 2.5% on Wednesday.
Still, Ms Bovino noted that “people were still spending” in January and shopping was widespread: Sales at car dealerships rose 5.7% from the previous month, while e-commerce sales rose by 14.5%. Spending at electronics and appliance stores rose 1.9%, and sales at clothing and general merchandise stores, such as department stores, also increased.
The effect of the latest wave of coronavirus was evident in some sectors. Spending at restaurants, bars and gas stations fell around 1% as people stayed home. But overall, sales in January rose much faster than the 2% gain economists had expected.
Consumers were spending even as they faced rapidly rising prices and a shortage of new cars, appliances and more. Consumer prices in January rose 0.6% from the previous month, the government announced last week, and 7.5% from 12 months earlier. Supply chain difficulties, coupled with strong consumer demand, pushed prices higher throughout the past year.
Several consumer products companies said recently that sales held up even as they raised prices to offset rising labor and transportation costs. Procter & Gamble, the maker of Crest toothpaste and Tide detergent, said last month that price increases helped lift revenue 6% from a year earlier to $21 billion in the three months ending December 31.
Kraft Heinz said on Wednesday it raised prices 3.8% from a year earlier in the three months to December. Its sales fell in the quarter but were stronger than analysts had expected, largely due to price increases.
Ms Farooqi said further upbeat economic readings in the coming months could cause economists to raise their forecasts for economic growth this year as “consumer spending has been driving this recovery”.
Economists polled by Bloomberg expect gross domestic product – the broadest measure of the country’s output of goods and services – to grow 3.7% in 2022, a slowdown from 5 percent growth. .7% in 2021.
“Our base case was that consumer spending would slow in 2022 as tax measures expire and savings decline,” Ms. Farooqi said. “But the jobs data that came out showed positive momentum in job growth, which has implications for income growth, which has implications for spending.”
An earlier version of this article misrepresented the rise in spending at electronics and appliance stores in January. Sales were up 1.9% from the previous month, not 4.6%.