US retail has made a strong comeback after a disappointing holiday season. Retail sales soared in January, up 3% from December, the biggest monthly sales increase since March 2021, according to a Department of Commerce report.
The US economy was having trouble getting going again after the pandemic, so the increase in sales is encouraging.
Strong January numbers eased fears of an imminent recession. Some experts attribute this to the end of the holiday shopping season and consumers spending more after receiving stimulus packages.
The report also shows that the increase in sales has been attributed not only to higher prices, but also to higher sales volumes, suggesting that U.S. consumers remain willing to spend.
Sales growth was seen across all retail categories, with department stores (17.5%), bars and restaurants (7.2%) and car dealerships (6.4%) seeing the biggest growth. Excluding car and gasoline sales, sales this month he increased 2.6%.
The inflation rate, which has been high lately, is still a concern despite the positive news. According to the Consumer Price Index (CPI), annual inflation decreased by 0 basis points to 6 basis points in January. Even though it is a little lower than in December, this rate still exceeds the Federal Reserve’s target rate of 2%.
For the US economy, the increase in retail sales is a positive development, but it is unclear whether this trend will continue. Consumer spending may decline as a result of the ongoing supply chain disruptions and the rising cost of living. But the robust performance in January offers some hope for the US economy and the retail industry.
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Conditions of the Market
Since January 2022, when the Omicron variant surged, retail sales have increased 6.4% year-over-year. Economists attribute the increase in sales to several factors, including good weather, a strong job market and post-holiday discounts.
Diane Swonk, KPMG’s chief economist, noted that the increase in Social Security payments was also a factor in the rise in sales.
“And people have more paychecks, no matter how you cut it,” she added. “If they weren’t laid off like usual, they have more paychecks and more pay in the month of January.”
However, inflation and the increase in consumer goods prices in the January CPI report have impacted the real value of retail sales. According to Wells Fargo, factoring in inflation and the 0.4% increase in consumer goods prices, real retail sales rose 2.6%.
The strong rebound in retail sales in January is likely to have implications for the Federal Reserve’s policy decisions. Economists suggest that the report will underscore the Fed’s resolve to keep increasing interest rates to cool demand as it tries to mediate inflation.
Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, wrote in a note that the economy is still strong, unemployment remains low, and that is what’s going to keep inflation elevated.
“The Fed is going to need to raise rates higher — and hold them higher for longer — than people currently expect, and this is going to cause markets to go through some significant volatility,” he added, “as stock and bond markets are priced for benign scenarios and not the more difficult one that we are headed towards.”
The January retail sales report indicates that the US economy is experiencing a period of growth, but also highlights the challenges posed by inflation and rising interest rates. As the Federal Reserve looks to manage these challenges, businesses and consumers will need to remain vigilant and adaptable to changing economic conditions.
The American consumer has shown remarkable resilience in the face of challenging economic conditions, according to recent data analyzed by experts. Matt Schulz, chief credit analyst at LendingTree, has noted that Americans have done a good job managing their finances in the midst of the pandemic, despite rising inflation and fuel prices.
One factor contributing to consumer resilience has been the increased use of credit cards for spending. While delinquencies have risen, they have not spiked to the levels seen in previous economic downturns. Additionally, consumers have benefited from drawing down extra savings during the pandemic.
Furthermore, easing inflation and lower fuel prices have provided a much-needed boost to consumer spending power. As Mike Skordeles, head of US economics at Truist Advisory Services, notes, real incomes benefited from the sharp declines in gasoline prices in the back half of 2022. This has given the average person a couple of hundred extra dollars on a monthly basis.
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Interest Rates Continues to Hike
However, experts warn that the current spending spree is unlikely to continue. As the Fed continues to up the interest rates, particularly for lower-end consumers and small businesses, there are concerns that this will create a headwind for the economy as a whole. According to Skordeles, the impact of higher interest rates is already being felt, and there are many “dominoes” that have already tipped.
Despite these challenges, the American consumer has proven to be resilient and adaptable in the face of economic uncertainty.
While the road ahead may be difficult, experts believe that consumers are well-equipped to weather the challenges that lie ahead. With careful financial management and a willingness to adapt to changing economic conditions, the American consumer is well-positioned to emerge from this period of uncertainty stronger than ever.
Photo: IB Times