Shopping Surged in January, Defying Inflation and The Fed

Retail sales rose unexpectedly by 3%

A couple look at a tablet being held by a car salesman inside a dealership.

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Key Takeaways

  • Retail sales jumped 3% in January, more than economists had expected, indicating the economy is avoiding a recession at least in the short term.
  • Sales rose across almost every category of retailer, led by department stores and restaurants.
  • Economists cautioned that good weather may have helped push people to stores, and February could see a backslide.

If consumers are feeling the financial pressure from rapid inflation and surging interest rates for loans, they shrugged it off in January and ramped up their spending. 

Retail sales surged 3% in January compared to December, as people spent more at all kinds of retailers, the Census Bureau said Wednesday. Spending rose in nearly every category, especially department stores, which surged 17.5%, and restaurants, which jumped 7.2%, with only gas station sales remaining flat. Overall, sales were up 6.4% compared to January 2022.

Consumers are still willing to open their wallets, the report shows, even under intense pressure from unusually high inflation that is running at 6.4% annually. The Federal Reserve’s efforts to curb inflation—which has involved jacking up interest rates, affecting consumer debt like credit cards and car loans—hasn’t put a damper on spending either. January’s sales figures, which exceeded the 1.9% median forecast from economists, bounced back from slumping sales in November and December, indicating the economy is resisting a long-predicted recession, at least for the moment.

Taken together with the job market’s strong showing in January, the resilience of retail sales “suggests the economy will easily avoid a recession in the first quarter,” Paul Ashworth, chief North America economist at Capital Economics, said in a commentary.  

However, many economists found reason to be skeptical that January’s sales boom represents the beginning of a sustained trend rather than just a blip. The U.S. saw unusually warm weather in January, with the temperature nationwide averaging 5.1 degrees above average. That helped boost sales, especially at car dealerships.

“Warm weather encouraged people to go out and spend after harsh conditions depressed activity in December,” James Knightley, Chief International Economist at ING, said in a commentary. “Household incomes remain under pressure and with weather patterns normalizing a correction is likely in February.”

Article Sources
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  1. Census Bureau. "Advance Monthly Sales for Retail and Food Services, January 2023."

  2. MarketWatch. "U.S. Economic Calendar."

  3. National Centers for Environmental Information. "January 2023 National Climate Report."

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