January retail sales surge 3.8% as consumers defy inflation
New York — Fueled by pay gains, solid hiring and enhanced savings, Americans sharply ramped up their spending at retail stores last month in a sign that many consumers remain unfazed by rising inflation.
Retail sales jumped 3.8% from December to January, the Commerce Department said Wednesday, a much bigger increase than economists had expected. Though inflation helped boost that figure, most of January’s gain reflected more purchases, not higher prices.
Last month’s increase was the largest since last March, when most households received a final federal stimulus check of $1,400. The fact that consumer spending remains brisk even after government stimulus has faded – enhanced unemployment aid ended in September – suggests that Americans’ pay is rising enough to drive a healthy pace of spending and economic growth.
Still, those 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 several times this year beginning in March.
“Consumers say they are worried about inflation, but they continue to spend,” said Gus Faucher, chief economist at PNC Financial. “Job growth is strong, wages are increasing and household wealth is way up 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 rose 3.6% and at department stores 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 exploding.
Gasoline sales fell 1.3%, possibly a result of the cost and cases of omicron, which rose in tandem, according to Ted Rossman, a senior industry analyst at Bankrate.com.
Since the pandemic erupted two years ago, spending has continued to be heavily weighted toward goods – things that people can own. But as COVID-19 cases decline, Americans are expected to begin spending more on concerts, movies and dinners out.
At the same time, Wednesday’s retail report covers only about one-third of overall consumer spending; it doesn’t include such services as haircuts, hotel stays and plane tickets.
The New York clothing company Untuckit has registered a rebound in recent weeks, with more people preparing for an eventual return to the office, said Aaron Sanandres, the CEO and a co-founder.
“I am optimistic that this time there is a bit more momentum,” Sanandres said.
The omicron variant that emerged in late November caused widespread worker shortages, with many employees calling in sick. Yet the wave of the most recent variant appears to have been short-lived. Reported infections began to decline by mid-January as fast as they rose late last year. Cases have plunged from 436,000 a day two weeks ago to 136,000 Monday.
What is rising is inflation, reaching heights not seen in four decades. The acceleration of prices has wiped out many pay raises and caused the Fed to reverse course from its low-interest rate policies and signal that it will steadily tighten credit this year to try to cool inflation.
January’s robust increase in retail purchases followed gains in October and November before a sharp drop in December, a month when sales are normally high. By January, despite surging inflation – consumer prices soared 7.5% last month from 12 months earlier – Americans appeared ready to renew spending.
The volatility in retail sales data is emerging after the pandemic and related supply crunches drastically altered the behavior of Americans, particularly at the end of 2021. Major retailers companies urged people to shop early to avoid shortages, and Americans did, in huge numbers.
Services spending, at least in some sectors, is rising along with goods purchases. Joseph Aquino, who runs a real estate services firm in New York, says leasing activity for retail spaces is picking up, recovering from a steep downturn in that sector.
Still, the sector’s recovery has a long way to go. Rents on Madison Avenue had ranged from $1,500 to $1,800 a square foot before the pandemic, Aquino said. Now, the same space is now going for between $600 to $800 per square foot.
“There is a sense of optimism, ”Aquino said. “People are realizing that the virus is slowly dissipating.”
Rugaber reported from Washington.