Retail Sales Rebound Strongly in January, Suggesting Economy May Be Hotter Than the Fed Likes
© (Joe Raedle/Getty Images)
MIAMI, FLORIDA - JANUARY 24: A worker stocks the shelves at a Walmart store on January 24, 2023 in Miami, Florida. Walmart announced that it is raising its minimum wage for store employees in early March, store employees will make between $14 and $19 an hour. They currently earn between $12 and $18 an hour. (Photo by Joe Raedle/Getty Images)
Retail sales increased a better-than-expected 3% in January driven by outsized spending at restaurants and bars, the Census Bureau reported on Wednesday.
The number, which is not adjusted for inflation, compares to a drop of 1.1% in December when retailers engaged in substantial promotions to move merchandise during the holiday season. Warm weather may have played a part also, as analysts reported an uptick in purchases of sporting goods equipment and home furnishings.
Sales have undergone a transition in recent months as consumers spent more on services like travel, getting a haircut or going out to eat in place of the outsized spending on durable goods like home furnishings that occurred during the coronavirus pandemic. That, in turn, has affected the trajectory of inflation with decreases coming predominantly in the goods sector of the economy.
Data from Affinity Solutions, a firm that analyzes credit and debit card transactions, showed a 6.3% increase in consumer retail spending year-over-year in January 2023, a slight decrease from December’s 6.9% rise.
“High grocery and gas prices, along with the slowdown in housing, are affecting consumer purchasing patterns, Affinity said. Spending was up across all demographics, led by Millennials whose growth rates exceeded Gen X consumers by 1.6%, and baby boomers by 2%.”
Andrew Hogenson, global head of consumer goods, retail and logistics at Infosys Consulting, said that consumers’ confidence is “high enough” with a strong labor market, residual savings from the pandemic era and increases in home equity. “Generally speaking, people built up a lot of wealth.”
The strong report will give credence to those who say the economy is running hotter than the Federal Reserve would like, meaning the central bank will need to keep interest rates higher for longer. On Tuesday, the government reported that inflation, while falling, is still running at a 6.4% annual clip.
“Although resilient consumer spending is a positive sign for the health of the economy, renewed demand for supply-constrained categories could add to inflation pressures, potentially eliciting more aggressive action from the Fed,” said Kayla Bruun, economic analyst at decision intelligence company Morning Consult.
Yields on bonds have risen in response, indicating the market thinks interest rates are heading higher in the near term.
The one-year Treasury is now yielding 5%, a level not seen since 2007.
“Blowout January US Retail Sales Report with overall sales up 3%. The key control group that feeds into GDP expanded by 1.7% on the month. Ex autos & gas increased by 2.6% and ex-gasoline sales advanced 3.2%. Economy remains overheated & rates need to be increased,” RSM US LLP Principal & Chief Economist Joseph Brusuelas tweeted after the report came out.
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