The U.S. consumer bounced back in January with a 3% boost in retail spending, which was a surprise given weaker spending during the holidays.
This Wednesday, the U.S. Census Bureau announced that the advance estimates of U.S. retail and food services show that consumers spent $697 billion in January, up 3% from December and up 6.4% from January 2022.
Furthermore, retail sales for the three-month period between November 2022 and January 2023 rose 6.1% compared to the same three-month period a year earlier, the announcement said.
The U.S. economy has remained relatively resilient through the last year or so of high inflation and rising interest rates. In January, employers added 517,000 jobs, which was roughly triple what economists expected.
Wednesday’s strong retail sales report is a good indicator that consumers still have a way to go before they are financially tapped out, according to Joel Naroff, president of Naroff Economics LLC.
“Consumers are in pretty decent shape,” Naroff told the Wall Street Journal. “When people are comfortable in their job situation, that translates into consumer spending,” he said.
Early estimates show that consumer spending surged in nearly all categories.
Categories that consumers decided to spend more in between December 2022 and January 2023 were “food services and food places,” such as restaurants and bars, which jumped about 7.2%; “motor vehicle and part dealers” like car dealerships, which increased by 5.87%; “department stores,” which rose 17.8%; and “furniture and home furnishing stores,” which increased 4.17%, according to the Census Bureau’s advanced estimates.
Spending at “gasoline stations” remained flat month-over-month.
The results for January 2023 were adjusted for seasonal variation as well as holiday and trading-day differences but not for price changes, the Census Bureau said in the report.
Economic data points toward a pickup in growth in the early part of 2023, following “a soft patch in late 2022,” according to Bill Adams, a chief economist for Comerica Bank, as reported by CNBC.
“The Fed will read recent activity reports as supporting plans for additional interest rate increases in the first half of this year,” said Adams.
The U.S. Central Bank projects the terminal rate will peak between 5% and 5.25%. On February 1, the Fed approved a 25 basis point increase in interest rates, raising the range of the Fed funds current rate to between 4.5% and 4.75%.
Despite a strong showing from job growth and retail spending, Aneta Markowska, a chief financial economist at Jefferies LLC, suggested to the WSJ that the latter might just be a blip in reaction to the low spending seen during the holidays.
“Don’t extrapolate from the strength,” she said, according to the WSJ.