Retail sales rose by 3.8% in the last month, seasonally adjusted. This was well above what most economists had predicted. According to U.S. Commerce Department revised figures, sales fell 2.5% compared to the previous month.
Inflation is likely to have pushed spending up even more in January.
All retail sales increased across all categories. General merchandise stores saw sales rise 3.6% while department stores saw sales spike 9.2%. Furniture and home furnishings stores saw a 7.2% increase in sales. Online sales soared by 14.5%
Experts said that restaurants experienced a 0.9% decrease in traffic compared to the previous month. This is likely because consumers resisted going out for fear of contracting the virus.
In a report, Lydia Boussour (lead U.S. economist) and Kathy Bostjancic (chief U.S. financial economicset), wrote that “Omicron, inflation, were not enough” to stop U.S. consumers spending in January.
The economists stated that the rebound was almost twice as strong than expected and was attributed to buoyant vehicle sales and online purchases, which helped consumers avoid restaurants because of virus fear.
The $28.6B Restaurant Revitalization Program, which is part of the $1.9 Trillion American Rescue Plan Act by the Biden administration, was not enough to reach every restaurant operator in need. After December , which is often the most profitable month of the year, a large number of establishments found themselves empty and are now in danger of closing permanently if federal assistance is not provided.
According to Ted Rossman, a senior industry analyst at Bankrate.com, gasoline sales dropped 1.3% last month due to the rising cost of fuel and Omicron cases.
Omicron variant: Common but not long-lived
The Omicron variant, which emerged in November, caused severe worker shortages and record-breaking numbers of Americans calling for help. However, the latest variant was short-lived. Infections began to fall mid-January just as fast as they did last year. The number of cases has fallen from 436,000 per day two weeks ago, to 136,000 Monday.
Inflation is on the rise , reaching levels not seen in forty years to wipe off pay raises and possibly eliciting a stronger policy response by Federal Reserve, which is likely to soon increase interest rates to cool down the economy.
After the pandemic and the related supply crunches, volatility in retail sales data is now evident, especially at the end 2021. Major retailers had advised people to shop early in order to avoid shortages. And Americans did that in large numbers.
After November and October saw an increase in sales, December saw a notable spending decline. This is a month that has been historically huge for the retail industry.
Despite inflation everywhere in the headlines, Americans seemed ready to increase spending by January
The U.S. economy escaped from a pandemic-induced recession by accelerating its consumer prices to 7.5% in January 2021. This was the highest year-over-year rise since February 1982. America’s consumers were flooded with cash and ready for rumbling. But, supply shortages caused by surging demand led to global supply-chain backups that drove prices higher.
Rubela Farooqi (chief U.S. economist at High Frequency Economics), stated that data were showing continued strong demand for goods. However, retail activity is also experiencing a solid lift due to high prices.
Oxford Economics economists also view the strong January numbers as an indicator of “a rapid rebound in consumer spending momentum”, but they caution against the ending of the Child Tax Credit.
Boussour said that there is a danger that the Child Tax Credit will expire and that steep price increases may reduce consumers’ willingness to spend.
On December 31, , the expanded CTC ended. The Build Back Better Act stalled due to opposition from Senator Joe Manchin (a West Virginia Democrat). Many economists believe that the ending of the CTC program will have a major impact on the spending of 36 million families who rely on it to pay groceries, purchase school uniforms, and help them raise their children.
Wednesday’s U.S. Commerce Department retail report covers just a third of total consumer spending. It doesn’t include services like haircuts, hotel stays or plane tickets.
