NEW YORK (AP) – Driven by wage increases, solid employment and increased savings, Americans increased their spending in retail stores sharply last month in a sign that many consumers remain unaffected by rising inflation.
Retail sales rose 3.8% from December to January, the Department of Commerce said Wednesday, a much larger increase than economists had expected. Although inflation helped increase this figure, most of January’s gains reflected more purchases, not higher prices.
Last month’s increase was the largest since March last year, when most households received a final federal stimulus check of $ 1,400. The fact that consumer spending remains brisk even after the government stimulus has faded – increased unemployment benefits ended in September – suggests that U.S. wages are rising enough to drive a healthy pace of spending and economic growth.
Nevertheless, these trends may also accelerate high inflation further, which has become the biggest threat to the economy, and the reason why 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 use it,” said Gus Faucher, chief economist at PNC Financial. “Job growth is strong, wages are rising, and household wealth has risen sharply thanks to rapidly rising housing values and, until recently, stock prices.”
Retail sales rose solidly across the spectrum in January. Sales in general stores increased by 3.6% and in department stores by 9.2%. Purchases in furniture and housing stores increased by 7.2 per cent. Online sales rose 14.5 percent.
Restaurants were an outlier in January: Sales fell 0.9%, likely a reflection of many people refraining from eating out at a time when reported omicron infections exploded.
Gasoline sales fell 1.3%, possibly a result of the cost and cases of omicron, which rose in pace, according to Ted Rossman, a senior industry analyst at Bankrate.com.
Since the pandemic broke out two years ago, spending has continued to be heavily weighted towards goods – things that people can own. But as COVID-19 cases fall, Americans are expected to start spending more on concerts, movies and dinners outside.
At the same time, Wednesday’s retail report covers only about a third of total consumer spending; it does not include services such as haircuts, hotel stays and airline tickets.
New York clothing company Untuckit has registered a recovery in recent weeks as more people prepare for a possible return to office, said Aaron Sanandres, CEO and co-founder.
“I’m optimistic that this time there’s a little more momentum,” Sanandres said.
The Omicron variant, which appeared in late November, caused widespread labor shortages, with many employees reporting sick. Still, the wave of the latest variant seems to have been short-lived. The reported infections began to decline in mid-January as fast as they increased at the end of last year. Cases have dropped from 436,000 a day two weeks ago to 136,000 on Monday.
What is rising is inflation and reaching heights not seen in four decades. The acceleration of prices has wiped out many wage increases and caused the Fed to turn its course from its low interest rate policy and signal that it will steadily tighten credit this year to try to cool inflation.
January’s robust increase in retail purchases followed increases in October and November before a sharp decline in December, a month in which sales are usually high. In January, despite rising inflation – consumer prices rose by 7.5% last month from 12 months earlier – Americans appeared ready to renew consumption.
The strong January report comes as major retailers, including Walmart, are scheduled to release their fourth-quarter financial results, starting as early as Thursday. Bryan Eshelman, CEO of retail at AlixPartners, believes that earnings reports, which cover November to January, will be strong as stores have been able to exercise their pricing power. But he questions whether consumers will continue to pay full price or go back to their old behavior of waiting for a sale.
“Will retailers be willing to have the discipline to keep the line?” he asked.
Volatility in retail sales data is also emerging, after the pandemic and related supply problems drastically changed US behavior, especially in late 2021. Large retail companies encouraged people to act early to avoid shortages, and so did Americans in large numbers.
Expenditure on services, at least in some sectors, is rising along with purchases of goods. Joseph Aquino, who runs a real estate service business in New York, says the rental business for retail space is rising and recovering from a steep downturn in that sector.
Still, the sector’s recovery has a long way to go. The rent on Madison Avenue had ranged from $ 1,500 to $ 1,800 per person. square meters before the pandemic, Aquino said. Now the same space now goes for between $ 600 to $ 800 per square foot.
“There’s a sense of optimism,” Aquino said. “People are aware that the virus is slowly disappearing.”