According to new data, despite a fresh wave of coronavirus infections, the public spent big on cars, home decor, and building supplies in January to boost retail sales to a record high and generate the most significant increase in 10 months.
According to recent figures from the Department of Commerce, retail and food services sales hit $649.8 billion last month, the highest total since the federal government began tracking the numbers three decades ago. The department said that the total grew 3.8% from December and 13% from the same time last year.
The figures, released on Feb. 16, don’t account for price changes, meaning the totals were elevated by the steep inflation currently swelling prices for a range of goods. But the considerable increase suggests a decent economic start for 2022 and reflects a significant bounceback from December when spending was down 2.5%.
“The data are signaling ongoing strong demand for goods — although retail activity is also seeing a solid lift from high prices,” Rubeela Farooqi, chief U.S. economist at High Frequency Economics, reportedly said, adding that the results send “a positive signal for household spending in January, even as omicron effects persisted last month.”
The omicron variant of COVID-19 spread rapidly in December and January, forcing many to return to quarantine and self-isolation while others stayed home to avoid infection.
But the effect on the total value of sales seems to have been limited. Last month, the 3.8% rise in retail spending represented the most significant jump since March 2021, when the federal government issued the third round of stimulus checks as part of pandemic-related economic recovery efforts. In addition, sales totals at “nonstore retailers” — or online stores — rose 14.5%, helping to drive last month’s overall hike.
“Consumer spending has been cycling up and down against expectations for several months,” Mark Cohen, an adjunct professor at Columbia University’s graduate business school, told the Washington Examiner in an email. “We seem to be careening from one guardrail to another. This oscillation of performance in an unprecedented disrupted world is indicative of forces at play that can’t presently be accurately understood.”
“We were behaving like COVID was over, and then suddenly it wasn’t, and now it is,” said Cohen, who serves as the school’s head of retail studies. “I think January is a manifestation of instability fueled by an abundance of disposable income looking to be spent, a foreboding sense of the onset of inflation that looms ahead, a desperate desire to get out and live life.”
Spending totals rose significantly among a range of industries in January. In addition to online retailers, department stores and furniture shops were among the businesses that saw the highest increases in sales, according to the Commerce Department data. Spending at department stores was up 9.2% from December, while sales at furniture and home furnishing stores increased 7.2%.
Businesses that sell building and gardening materials also saw a boost, with sales increasing 4.1% in January and 12.2% over the last year.
Total spending at motor vehicle and parts dealers contributed to the overall increase as well, jumping by 5.7% in January and up 11.3% since the same time last year. Car production screeched to a halt at the start of the pandemic due to widespread shutdowns and has yet to rebound fully, reducing supply and driving up prices. The automotive industry has since faced shortages in crucial car parts, such as semiconductors, that have further prevented it from completely recovering. With fewer new vehicles on the market, the price of used cars and trucks is up 40.5% in the last year, according to recent data from the Department of Labor.
Though it didn’t see a major monthly change in January, higher spending on gas and food is also fueling the overall yearly increase in sales, according to the data. Sales at gas stations were up more than 33% from last year, while sales at restaurants and bars increased 27%.
Cars, fuel, and food are among a wide range of goods that have recently become more expensive due to inflation, which is helping to drive up the spending amounts. The latest Labor Department data show the consumer price index, which measures how much consumers are paying for goods and services, rose 7.5% in the last year. It was “the largest 12-month increase since the period ending February 1982,” the Bureau of Labor Statistics said.
The consumer price index for energy is up 27% since January 2021, while the price of food has risen 7% over the same time period. As with vehicles, supply chain disruptions have contributed to bigger grocery bills, particularly for meat, as have labor shortages and major storms.
With inflation rising steadily, the central bank has signaled plans to start hiking interest rates in March for the first time in more than three years to try to cool the economy. Higher interest rates could encourage consumers to save money and avoid debt, reducing demand and the higher prices that come with it.
“High inflation is a heavy burden for all Americans, but especially for those with limited means who are forced to pay more for everyday items, delay purchases, or put off saving for the future,” Michelle Bowman, a member of the Federal Reserve board of governors, said in a recent speech. “I intend to support prompt and decisive action to lower inflation.”
“In part, the high inflation reflects supply chain disruptions associated with the economic effects of the pandemic and efforts made to contain it,” said Bowman, who spoke before an American Bankers Association conference in California on Feb. 21. “Unfortunately, monetary policy isn’t well suited to address supply issues. But strong demand and a very tight labor market have also contributed to inflation pressures, and the [Federal Open Market Committee] can help alleviate those pressures by removing the extraordinary monetary policy accommodation that is no longer needed.”
“I support raising the federal funds rate at our next meeting in March and, if the economy evolves as I expect, additional rate increases will be appropriate in the coming months,” Bowman said.
Lael Brainard, another Federal Reserve governor, recently said she also supports multiple rate increases this year, the New York Times reported. “I do anticipate that it will be appropriate, at our next meeting, which is in just a few weeks, to initiate a series of rate increases,” Brainard reportedly said.
Though there has been some debate over the size of the increase, the Fed is expected to raise the federal funds rate by the typical quarter-point next month. But the January sales figures suggest wrangling in inflation won’t be easy, according to one expert.
“The strong rebound in January retail sales, though partly in response to last year’s weak finish and inflated by higher prices, suggests consumers still have plenty in the tank to propel the expansion forward this year,” Sal Guatieri, a top economist at BMO Capital Markets, told Reuters. “Rate hikes won’t cool their jets for a while, making the Fed’s job of driving down inflation that much harder.”
