Retail sales picked up in January after a slump in December despite fears of high inflation, and the U.S. hitting its peak number of Omicron cases last month. The increase indicates a robust economy.
January retail sales were up 3.8 percent from December, according to a Census Bureau report on Wednesday. Additionally, last month’s retail sales rose 13 percent from January 2021. The uptick follows the news that more jobs than anticipated were added at the beginning of this year.
The January retail sales report puts to rest fears that the COVID surge would keep consumers and retail workers at home. It also demonstrates that while inflation is at an all-time high of 7.5% and that some products are more expensive, consumers aren’t deterred from spending — yet.
“This was an extraordinary bounce for January. This is an indication that the economy is not cooling on its own,” said Peter Morici, an economist and professor emeritus at the R.H. Smith School of Business at the University of Maryland.
While the retail sales increase was above the forecasting average of 2.17 percent, by economists surveyed by Bloomberg, not all businesses saw an uptick.
Restaurants and bars, for example, saw a 0.9 percent decrease in January compared to the month prior, which is attributed to Omicron.
Besides hospitality, gas stations, and a few other types of businesses, many others showed growth. Though, some of the step-up in sales are attributed to pent up demand.
Auto sales rose 5.7 percent, a welcome gain from December and 11.3 percent from the same month last year. The increase can be credited to fewer production shutdowns and inventory rebuilding at the end of 2021, which allowed for the industry to respond to demand.
“I don't think we're out of the woods in terms of the auto supply story. But things are improving on the margin,” said Michael Brown, Principal U.S. Economist at Visa.
This month’s Canadian trucker protest on the Ambassador Bridge, a key route used to transport vehicle parts to Michigan automakers, caused plants to reduce and halt production. But Brown doesn’t think the protest will have a significant impact on the next few months of auto sales because the Ambassador Bridge interruption was relatively brief.
Then there’s the I word. Inflation.
While retail sales are up, the report doesn’t adjust for inflation, which is at a 40-year high. Experts warn that some of the gains are merely the reflection of price increases, because people may not necessarily be purchasing more stuff.
“In real terms, which is what everybody is concerned with, it [inflation] is not going to help. It's making households spend more,” said Mikhail Melnik, Associate Professor, Kennesaw State University in Georgia.
Looking ahead, it remains to be seen when inflation will abate or whether it will cause consumers to significantly curb their spending causing retail sales to dip.
Other experts think that retail sales will weaken in the months ahead not because of inflation, but because Americans will purchase more services, like entertainment and travel, later this year and into 2023.