Retail Sales Surge as Prices Rise and Shoppers Keep Buying

Retail sales surged in January, a sign of consumer resilience as prices continue to rise at a breakneck pace. That’s also good news for retailers, but a potential worry for the Federal Reserve as it tries to slow down the economy to contain inflation.

US retail sales in January rose 3% from the previous month, much higher than the 2% gain economists predicted in a Bloomberg survey. That’s a reversal from the 1.1% drop announced in December and the biggest jump since March 2021.

The data, which can fluctuate monthly, is adjusted for seasonality but does not account for price changes, i.e. inflation — which cools very slightly in Januarybut there are signs of stickiness — at least partly contributing to the monthly jump.

Nearly every retail category saw sales gains last month, with car dealers, furniture sellers and electronics stores recording some of the biggest gains. Sales at department stores rose 17.5%, a surprising increase since the post-holiday shopping season is often one of the slowest for department stores.

A strong increase in shoppers at the start of the year could make retailers more optimistic about their business in 2023. There have been concerns that consumers may back out as they face a disruption. increase prices rapidly and burn through savings, shrinking retailers’ profit margins and reducing sales. But the labor market remains strong and wage growth steady, keeping cash in people’s pockets and helping to keep spending.

The Fed has raised interest rates aggressively over the past year to try to weigh up consumer and business needs, hoping to calm the economy enough to force companies to stop raising prices too much. Central banks have pushed up borrowing costs over 4.5 percentfrom near zero this time last year and has forecast at least a few more rate hikes in the coming months.

But those adjustments – the most dramatic since the 1980s – appear to have temporarily dampened demand more sharply than stamped it out definitively. The housing market has cooled and consumer spending has shown signs of slowing down in recent months, but the labor market remains very strong and some parts of the economy appear to be on the verge of a recession. quit. speed up again.

Even after excluding cars and gasoline, retail sales rose 2.6% in January, much faster than the 0.9% rate economists expected in a survey of Bloomberg. Spending may have been partially lifted by a significant cost of living adjustment went to the Social Security check last month, boosting incomes for many older Americans.

Economists were keenly focused on the retail sales numbers for January. Some – including Tiffany Wilding at PIMCO and Maria Vassalou at Goldman Sachs Asset Management – think strong retail sales could prompt Fed officials to mark their rate path, along with rapid job growth and a inflation report that the proposed price increase is proving more stubborn than many expected.


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