Retail Sales Rebounded in January 2022, Jumping 3.8%

Prices were rising fast, products were in short supply and the Omicron variant put a chill on the country at the start of the year. Through it all, American consumers kept spending.

Retail sales rose 3.8 percent in January from the prior month, the Commerce Department reported on Wednesday, a faster-than-expected rebound from a sharp decline in December and another sign of the economy’s resilience, even as stores shortened their hours or closed as a surge in Covid-19 infections led to widespread staffing shortages. Wednesday’s sales data echoed a report that showed hiring was stronger than anticipated last month, with employers adding 467,000 jobs.

Other factors were at play, too, most notably fast-rising prices. The retail sales data wasn’t adjusted to account for inflation, and that could continue to boost the sales figures for months to come, economists said. But the overall takeaway was still that consumer spending held up last month.

“We are seeing a strong bounce to start the year, suggesting positive momentum for now, in spite of elevated prices,” said Rubeela Farooqi, the chief U.S. economist at High Frequency Economics.

Consumer spending accounts for the bulk of economic activity in the United States, and the report arrived at a critical time for the economy, as the Federal Reserve shifts its focus to battling inflation from supporting growth. The central bank is expected to raise interest rates as soon as next month, and rising borrowing costs could dampen spending by consumers and businesses.

Other factors could also curb spending. An expansion of the child tax credit — through which the government deposited as much as $300 per child into qualifying Americans’ bank accounts each month — ended at the start of the year, and although consumers haven’t been deterred by inflation yet, there have been signs it is beginning to wear them down. One measure of consumer sentiment released this month — the University of Michigan’s Index of Consumer Sentiment — showed the least favorable long-term economic outlook in a decade.

“I think it’s a matter of time before there is pushback in terms of consumers stepping back, and that’s something we need to figure into our estimates,” Ms. Farooqi said.

Some of January’s jump in sales probably had to do with one-off factors like a restocking of shelves that had emptied out last year, said Beth Ann Bovino, the chief U.S. economist at S&P Global. With more available to buy, spending increased, she said.

Another was that people use gift cards in January after receiving them as Christmas presents. Sales of gift cards don’t show up in the data until they have been used, she said.

“If they get it on Dec. 25, they probably take it out in January when they’re done with their festivities,” Ms. Bovino said, noting that shoppers may be more forgiving of higher prices when “they are buying with other people’s money.”

Plus, spending patterns have become less predictable during the pandemic, complicating efforts to predict what will happen next. Before the pandemic, holiday shopping would push retail sales higher in December, and a slowdown in spending would be reflected in January. This year’s gain followed a drop in December that on Wednesday was revised to 2.5 percent.

Still, Ms. Bovino noted that “people were still spending” in January, and the purchasing was broad-based: Sales at car dealers rose 5.7 percent over the previous month, while e-commerce sales rose 14.5 percent. Spending at electronics and appliances stores rose 1.9 percent, and sales at clothing and general merchandise stores, such as department stores, were higher as well.

The effect of the latest coronavirus wave was evident in some sectors. Spending at restaurants, bars and gas stations fell about 1 percent as people stayed home. But overall, sales in January rose far faster than the 2 percent gain economists had expected.

Consumers were spending even as they faced fast-rising prices and short supplies of new cars, appliances and much more. Consumer prices in January increased 0.6 percent from the prior month, the government said last week, and 7.5 percent from 12 months earlier. Supply-chain woes coupled with strong consumer demand pushed prices higher through all of last year.

Several consumer products companies have said recently that sales have held up even as they have increased prices to offset higher labor and transportation costs. Procter & Gamble, the maker of Crest toothpaste and Tide detergent, said last month that price increases helped drive revenue 6 percent higher from a year earlier, to $21 billion in the three months that ended Dec. 31.

Kraft Heinz reported on Wednesday that it raised prices 3.8 percent from a year earlier in the three months that ended in December. Its sales slipped in the quarter but were stronger than analysts had expected, thanks largely to the price increases.

Ms. Farooqi said further optimistic economic readings in the coming months could lead economists to raise their forecasts for economic growth this year, because “consumer spending has driven this recovery.”

Economists surveyed by Bloomberg expect gross domestic product — the broadest measure of the nation’s production of goods and services — to grow 3.7 percent in 2022, a slowdown from growth of 5.7 percent in 2021.

“Our base case was that consumer spending would slow coming into 2022 as fiscal measures expired and savings diminished,” Ms. Farooqi said. “But the employment data that came out showed positive momentum in employment growth, which has implications for income growth, which has implications for spending.”