default-output-block.skip-main
BoF Logo

The Business of Fashion

Agenda-setting intelligence, analysis and advice for the global fashion community.

US Retail Sales Hit Record High, Highlighting Economy’s Underlying Strength

Consumers are spending more as pandemic restrictions ease.
Retail sales surged 3.8 percent last month, the largest rise since last March. (Shutterstock)

US retail sales increased by the most in 10 months in January, lifting the level of sales to a record high amid a surge in purchases of motor vehicles and other goods, but higher prices could limit the boost to economic growth this quarter.

The report from the Commerce Department on Wednesday showed underlying strength in the economy ahead of anticipated interest rate increases from the Federal Reserve starting in March, although retail sales in December were much weaker than initially estimated.

“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,” said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto. “Rate hikes won’t cool their jets for a while, making the Fed’s job of driving down inflation that much harder.”

Retail sales surged 3.8 percent last month, the largest rise since last March. That raised sales to their highest level since the government started tracking the series in 1992.

Data for December was revised down to show sales declining 2.5 percent instead of 1.9 percent as previously reported. Economists polled by Reuters had forecast retail sales would rise 2.0 percent, with estimates ranging from as low as 0.7 percent to as high as 4.4 percent.

Retail sales increased despite consumer sentiment sagging to a decade low in recent months.

The broad increase in sales was led by motor vehicles.

Auto sales typically fall in January after the holiday promotional season. Given the ongoing scarcity of motor vehicles because of a global shortage of semiconductors, the drop last month was probably smaller than had been expected by the seasonal factors, the model used by the government to iron out seasonal fluctuations in data.

That likely resulted in the seasonal factors being more generous than in previous years. Unadjusted auto sales last month were the highest for the month of January going back to 1992.

Economists expect this boost to fade in March. Auto sales could also fall, with a separate report from the Fed on Wednesday showing motor vehicle production declined in January for a second straight month. That curbed overall growth in manufacturing output to 0.2 percent last month.

“Despite some caveats to the retail sales report, at least we can be assured that consumers are not pulling back their crucial support for the economy even though they are experiencing a marked decline in confidence if not being downright depressed about what the future holds,” said Christopher Rupkey, chief economist at FWDBONDS in New York.

Stocks on Wall Street fell as investors worried the strong retail sales could give the US central bank ammunition to aggressively tighten monetary policy. Financial markets have priced in a better-than-even chance of a 50-basis-point interest rate increase next month. Economists expect as many as seven rate hikes this year.

The dollar slipped against a basket of currencies while US Treasury prices rose.

Broad Gains

Retail sales last month were also lifted by higher prices because of shortages amid strained supply chains. They are mostly made up of goods and are not adjusted for inflation.

Economists estimated that retail sales rose about 2.8 percent in January when adjusted for inflation, which put them back in line with their pre-pandemic trend.

Receipts at auto dealerships snapped back 5.7 percent after dropping 1.6 percent in December. Sales at electronics and appliance stores increased 1.9 percent. Building materials stores sales surged 4.1 percent. There were also gains in receipts at food and beverage stores as well as clothing retailers.

But sales at sporting goods, hobby, musical instrument and book stores fell 3.0 percent, suggesting consumers were cutting back on discretionary spending likely because of inflation. Sales at service stations fell 1.3 percent amid lower gasoline prices.

Receipts at restaurants and bars dropped 0.9 percent as Covid-19 infections, driven by the Omicron variant, reduced mobility. Restaurants and bars are the only services category in the retail sales report. Online retail store sales surged 14.5 percent.

Excluding automobiles, gasoline, building materials and food services, retail sales soared 4.8 percent in January. Data for December was revised lower to show these so-called core retail sales falling 4.0 percent instead of 3.1 percent as previously reported.

Core retail sales correspond most closely with the consumer spending component of gross domestic product.

Economists estimated that inflation-adjusted core retail sales rose 2.7 percent last month. The so-called real core retail sales are what matter in the measurement of consumer spending growth.

January’s solid real core retail sales suggested that consumer spending this quarter would probably not be as weak as economists had expected. Real consumer spending declined 1.0 percent in December, which had set consumption on a slower growth path.

“The recent volatility in the data makes it hard to detect the underlying trend, but the recent momentum for consumer spending now looks stronger than we were anticipating,” said Daniel Silver, an economist at JPMorgan in New York.

Growth estimates for consumer spending so far are below a 2.0 percent annualised rate. Consumer spending, which accounts for more than two-thirds of US economic activity, increased at a 3.3 percent pace in the fourth quarter.

Economic growth estimates for the first quarter are mostly below a 2 percent annualised rate. The economy grew at a 6.9 percent pace in the fourth quarter. Growth in 2021 was the strongest since 1984.

By Lucia Mutikani; Editors: Chizu Nomiyama and Paul Simao

Learn more:

How Fashion Brands Should Talk About Inflation

The growing price of raw materials and ongoing supply chain disruptions will force most companies to pass along those costs to consumers. Here’s how brands can navigate potential price increases.

In This Article

© 2024 The Business of Fashion. All rights reserved. For more information read our Terms & Conditions

More from Retail
Analysis and advice from the front lines of the retail transformation.


Vogue-produced campaigns, streetwear tie-ups, fashion week events and special relationships with Off-White and Puma have helped Italian giant AC Milan infiltrate the industry where other teams have fallen short.



view more

Subscribe to the BoF Daily Digest

The essential daily round-up of fashion news, analysis, and breaking news alerts.

The Business of Fashion

Agenda-setting intelligence, analysis and advice for the global fashion community.
CONNECT WITH US ON
BoF Professional Summit - New Frontiers: AI, Digital Culture and Virtual Worlds - March 22, 2024
© 2024 The Business of Fashion. All rights reserved. For more information read our Terms & Conditions, Privacy Policy, Cookie Policy and Accessibility Statement.
BoF Professional Summit - New Frontiers: AI, Digital Culture and Virtual Worlds - March 22, 2024