January retail sales up 3.8% as consumers defy inflation | Economic news
By ANNE D’INNOCENZIO and CHRISTOPHER RUGABER, AP Business Writers
NEW YORK (AP) — Fueled by wage gains, strong hiring and increased savings, Americans sharply increased spending in retail stores last month, a sign that many consumers remain unaffected by rising inflation .
Retail sales jumped 3.8% from December to January, the Commerce Department said Wednesday, a much larger increase than economists had expected. While inflation helped push that number up, most of January’s gain reflects more buying, not higher prices.
Last month’s increase was the largest since last March, when most households received a final $1,400 federal stimulus check. The fact that consumer spending remains strong even after the end of government stimulus measures – the increase in unemployment assistance ended in September – suggests that Americans’ wages are rising enough to stimulate a healthy pace of spending and of economic growth.
Yet these trends could also further accelerate high inflation, which has become the biggest threat to the economy and the reason the Federal Reserve is expected to raise interest rates multiple times this year starting in March.
“Consumers say they’re worried about inflation, but they’re still spending,” said Gus Faucher, chief economist at PNC Financial. “Job growth is strong, wages are rising and household wealth is rising thanks to rapidly rising home values and, until recently, stock prices.”
Retail sales rose solidly across the spectrum in January. Sales at general merchandise stores increased by 3.6% and those at department stores by 9.2%. Purchases at furniture and home furnishings stores increased 7.2%. Online sales jumped 14.5%.
Restaurants were an outlier in January: Sales fell 0.9%, likely a reflection of many people refraining from dining out at a time when reported omicron infections were skyrocketing.
Gasoline sales fell 1.3%, possibly due to cost and omicron cases, which rose in tandem, according to Ted Rossman, senior industry analyst at Bankrate.com.
Since the pandemic hit two years ago, spending has continued to be heavily skewed toward goods — things people can own. But as COVID-19 cases drop, Americans should start spending more on concerts, movies and dinners.
Meanwhile, Wednesday’s retail report only covers about a third of overall consumer spending; it does not include services such as haircuts, hotel stays and airline tickets.
New York-based clothing company Untuckit has seen a rebound in recent weeks, with more people gearing up for an eventual return to the office, said Aaron Sanandres, CEO and co-founder.
“I’m optimistic that this time there’s a bit more momentum,” Sanandres said.
The omicron variant that emerged in late November caused widespread worker shortages, with many employees calling in sick. Still, the wave of the most recent variant appears to have been short-lived. Reported infections began to decline in mid-January as rapidly as they increased late last year. Cases plunged from 436,000 a day two weeks ago to 136,000 on Monday.
What is rising is inflation, reaching heights not seen in four decades. The acceleration in prices wiped out many wage increases and caused the Fed to reverse its low interest rate policy and signal that it will tighten credit steadily this year in an attempt to calm inflation.
The sharp increase in retail purchases in January followed gains in October and November before a sharp decline in December, a month when sales are normally strong. In January, despite soaring inflation – consumer prices jumped 7.5% last month from 12 months earlier – Americans seemed ready to renew their spending.
The strong January report comes as major retailers, including Walmart, are expected to release their fiscal fourth quarter financial numbers, starting Thursday. Bryan Eshelman, general manager of the retail practice at AlixPartners, believes the earnings reports, which cover November through January, will be strong as stores have been able to exercise their pricing power. But he wonders if consumers will continue to pay full price or revert to old behaviors of waiting for a sale.
“Will retailers be ready to have the discipline to hold the line?” He asked.
Volatility in retail sales data is also emerging after the pandemic and related supply shortages drastically changed the behavior of Americans, particularly in late 2021. Major retail companies have urged people to make their buy early to avoid shortages, and Americans did so in large numbers.
Spending on services, at least in some sectors, increases alongside purchases of goods. Joseph Aquino, who runs a real estate services company in New York, says commercial space leasing business is picking up, recovering from a sharp decline in that sector.
Yet the sector’s recovery still has a long way to go. Rents on Madison Avenue ranged from $1,500 to $1,800 per square foot before the pandemic, Aquino said. Now, the same space now costs between $600 and $800 per square foot.
“There’s a sense of optimism,” Aquino said. “People are realizing that the virus is slowly dissipating.”
Rugaber reported from Washington.
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