Retail sales in the United States surged much more than anticipated in January after a surprising drop the month before, showing that demand remains hardy despite inflated prices.
Retail sales ticked up 3.8% in January, above consensus expectations of a more modest 2.1% increase, the Commerce Department said Wednesday. The new numbers come after a disappointing December report, which found that retail sales dropped by a revised 2.5%.
January’s retail sales numbers are the most robust since March of last year, when people across the country received stimulus checks.
The numbers are a bit surprising, considering that inflation has continued to outpace expectations. A report for the month of January found that consumer prices increased by 7.5% — the fastest annual rate in four decades.
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“The Omicron virus did nothing, absolutely nothing, to keep the consumer away from the shops and malls across the country,” said FWDBONDS chief economist Christopher Rupkey. “Ditto for the stock market turbulence. It must be the abundant wages story where consumers in 2021 received one of the biggest salary boosts in decades.”
It is worth noting that retail sales are not adjusted for inflation, so a chunk of the increase could be attributable to higher sales prices rather than an increased volume of purchases.
During January, the omicron variant of COVID-19 was raging, pushing the daily average cases in the U.S. to an all-time high of above 800,000 in mid-January. Since then, cases have fallen precipitously and are approaching pre-omicron levels. Hospitalizations and deaths are also down by double digits from two weeks ago.
Because of omicron, people stayed home more than in previous months, which January’s retail sales reflect. Online retail sales saw a boost of 14.5%, while restaurant and bar sales receipts declined by nearly 1% as the virus raged.
Meanwhile, the Federal Reserve is gearing up to hike interest rates for the first time in years in response to the high inflation. Some economists are predicting that the Fed’s monetary policy committee will raise its target by a half percentage point, rather than the typical quarter percentage point, which would essentially amount to two simultaneous rate hikes. If the central bank decides on that course of action, it would be the first time it did so in two decades.
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Also this week, producer prices increased by a staggering 9.7% for the year ending in January, according to a Tuesday report by the Bureau of Labor Statistics, further bolstering inflationary concerns.
The University of Michigan also reported that consumer sentiment in early February dropped to its lowest level in more than a decade.
