Prices were rising fast, products were in short supply, and the omicron variant put a chill on the country at the start of the year. Through it all, American consumers kept spending.
Retail sales rose 3.8% in January from the prior month, the Commerce Department reported Wednesday, a faster than expected rebound from a sharp decline in December and another sign of the economy’s resilience even as stores shortened their hours or closed as a surge in COVID-19 infections led to widespread staffing shortages. Wednesday’s sales data echoed a report that showed hiring was stronger than anticipated last month, with employers adding 467,000 jobs.
Other factors were at play, too, most notably fast-rising prices. The retail sales data wasn’t adjusted to account for inflation, and that could continue to boost the sales figures for months to come, economists said. But the overall takeaway was still that consumer spending held up last month.
Consumer spending accounts for the bulk of economic activity in the United States, and the report arrived at a critical time for the economy as the Federal Reserve shifts its focus to battling inflation from supporting growth. The central bank is expected to raise interest rates as soon as next month, and rising borrowing costs could dampen spending by consumers and businesses.
Some of January’s jump in sales probably had to do with one-off factors like a restocking of shelves that had emptied out last year, said Beth Ann Bovino, chief U.S. economist at S&P Global. With more available to buy, spending increased, she said.
Plus, spending patterns have become less predictable during the pandemic, complicating efforts to predict what will happen next. Before the pandemic, holiday shopping would push retail sales higher in December, and a slowdown in spending would be reflected in January. This year’s gain followed a drop in December that Wednesday was revised to 2.5%.
Sales at car dealers rose 5.7% over the previous month, while e-commerce sales rose 14.5%. Spending at electronics and appliances stores rose 1.9%, and sales at clothing and general merchandise stores, such as department stores, were higher as well.
The effect of the latest coronavirus wave was evident in some sectors. Spending at restaurants, bars and gas stations fell about 1% as people stayed home. But overall, sales in January rose far faster than the 2% gain economists had expected.