January retail sales improved over the prior month and likely indicate that surprisingly weak December data was an outlier.
A report on retail sales released by the Commerce Department Monday showed a 0.2 percent month-over-month gain from December. Gains were posted in eight of 13 categories, including nonstore retail, which includes most ecommerce.
“The rebound may have been a bit better than we had originally forecast,” said Scott J. Brown, chief economist at Raymond James & Associates.
The January figures calmed economists who were bewildered and skeptical after December’s report indicated retail had plunged at the end of 2018. The December report ran contrary to most findings. January’s increase – although small – aligned closely to what many expected to occur. Shoppers are spending in early 2019 and taking their money both online and to brick-and-mortar stores. Rumors of an impending recession have subsided at least temporarily.
Some analysts saw similarities between the retail and housing reports from the last two months. As with retail sales, December’s housing numbers were also worse than anticipated. When January housing data showed a turnaround after the report was issued last week, experts assumed the same would happen in retail.
“We kind of thought it – say, with housing, where December’s housing’s down was just ridiculously weak, and we had a good rebound here in the month of January,” said Stan Shipley, economist at Evercore ISI.
December’s unusual numbers are still a mystery, though. The Commerce Department adjusted the fall in monthly retail sales for that month even further to -1.6 percent. Despite that unhappy news, year-over-year figures still point to overall retail sales growth of 2.3 percent from the same point last year and show that the U.S. economy is growing.
Although the retail turnaround looks encouraging, Brown cautioned against drawing strong conclusions about the economy’s direction from January alone. Seasonal adjustments applied in December and January are large, and minor effects of the weather or the government shutdown can play an exaggerated effect.
Several analysts had been closely paying attention to the nonstore retail sector, which includes Amazon and other online vendors. Economists were shocked when the data showed sales in that category had declined suddenly with no apparent reason in December.
“The one that really caught our attention was on ecommerce, where it plunged nearly 4 percent month to month. Nothing we have heard supports it,” said Shipley
January’s figures showed nonstore retail pointing upwards again with a gain of 2.6 percent.
Young consumers such as Jonathan Salna, a graduate student at Columbia University in New York City, are behind ecommerce’s sustained growth. So far in 2019, he has bought books, school supplies and earbuds online. He cites the ease of finding products that suit his particular needs as a primary benefit behind online shopping.
“I don’t have to go on an expedition to track down what I want with the prices. With Amazon, I can type in broadly what I want and get 200-300 options,” he said.
Once he finds a match, he can quickly purchase the product and have it arrive within days.
“To be honest, I don’t where I’d go to buy earbuds anymore,” Salna said.
Certain sectors that have struggled to compete against ecommerce also saw a positive January. Specialty vendors, which cover sporting-goods retailers, hobby shops and bookstores, had their biggest month-over-month improvement since 2013, rising 4.8 percent. The general merchandise category, which includes department stores, posted an uptick also.
Newburgh Mercantile in Newburgh, NY, reflected that trend. Eric Jarmann owns the Hudson Valley-based shop with his wife, Jacqui. A strong holiday season fueled by shoppers in their own community created momentum for a solid beginning of 2019.
“We were up much higher because we were benefiting from the focus on “shop local.” And for our particular marketplace, the shop local message was hitting a really, really good stride,” Jarmann said.
“So that carried over into our January and subsequently February numbers as well.”
Higher sales seem be coming from the quantity of items purchased as opposed to purchases of high-priced merchandise, Jardann noted.
“What we’ve noticed is that our growth has been in the number of items sold per customer. So that’s translating into a bigger transaction but not because we are selling more expensive items. That’s been a very specific trend,” he said
Growth in retail in the short term has a good chance of continuing, says Kevin Cummins, senior U.S. economist at NatWest Markets Securities. Signs of consumer confidence are showing up following the end of the government shutdown – news that businesses will welcome.
“The timing of tax refunds has been a little bit of probably a burden on spending,” Cummins aid.
“But it appears now we’re getting pretty close to where we were, say – we’re tracking so far this year relative to last year.”