WASHINGTON: US retail sales rebounded sharply in January after two straight monthly declines, driven by purchases of motor vehicles and other goods, pointing to the economy’s continued resilience despite higher borrowing costs.
The Commerce Department said on Wednesday that retail sales surged 3.0% last month. Data for December was unrevised to show sales dropping 1.1% as previously reported.
Economists polled by Reuters had forecast sales would increase 1.8%, with estimates ranging from 0.5% to 3.0%. Some cautioned against reading too much into the jump in retail sales.
The drop in sales in the prior two months was blamed on the front-loading of holiday shopping, which economists said had not been fully adjusted for by the model that the government uses to strip out seasonal fluctuations from the data.
The so-called seasonal adjustment factors likely flattered retail sales in January. The blowout job growth in January was partially attributed to seasonal adjustment factors.
“The bottom line is that the underlying trend in consumption is not as weak as the December numbers indicated, but is also not as strong as the January numbers might suggest,” said Lou Crandall, chief economist at Wrightson ICAP.
Retail sales are mostly goods and are not adjusted for inflation. They were also lifted by higher gasoline prices, which inflated receipts at service stations. But even accounting for the technical distortions, Americans are still spending.
The Bank of America Institute last week reported a surge in spending in January based on an analysis of Bank of America credit and debit card data. It said this suggested “that while lower-income consumers are pressured, they still have solid cash buffers and borrowing capacity,” noting “even for the lowest-income cohorts this should provide support for some time yet.”
Citi card data also showed broad gains in spending on services. Retail sales were also likely supported by the biggest cost of living adjustment since 1981 for more than 65 million Social Security beneficiaries, which came into effect in January. Several states also raised their minimum wage.
The tight labor market continues to generate strong wage growth, though the pace has slowed. The Federal Reserve has raised its policy rate by 450 basis points since last March from near zero to a 4.50%-4.75% range, with the bulk of the increases between May and December. Two additional rate hikes of 25 basis points are expected in March and May.
Excluding automobiles, gasoline, building materials and food services, retail sales increased 1.7% last month. These so-called core retail sales fell by an unrevised 0.7% in December.
Core retail sales correspond most closely with the consumer spending component of gross domestic product.
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