Retail sales surge 3.8% in January, much more than expected amid inflation rise

Consumer spending bounced back sharply in January as rising inflation and a post-holiday surge kept cash registers ringing, the Commerce Department reported Wednesday.

Retail sales for the month rose 3.8%, much better than the 2.1% Dow Jones estimate.

The numbers are not adjusted for inflation; the 0.6% rise in the consumer price index for the month helped push a reversal from the 2.5% sales decline in December, which was revised lower from the initially reported 1.9% drop. CPI was up 7.5% on a year-over-year basis in January.

Excluding auto sales, the retail gain was 3.3%, after falling 2.8% in the previous month.

Online shopping contributed the most on a percentage basis, with nonstore retailers seeing a gain of 14.5%. Furniture and home furnishing sales increased 7.2%, while motor vehicle and parts dealers saw a 5.7% rise.

Food and drinking establishments, considered a barometer for the pandemic-era economy, saw sales dip just 0.9% for the month despite the major escalation in Covid cases fueled by the omicron spread.

“Consumers say they are worried about inflation, but they continue to spend,” PNC’s chief economist, Gus Faucher, wrote. “Even taking into account the December decline, retail sales in recent months have been increasing much faster than prices, so households are purchasing larger volumes of goods and services, not just paying higher prices.”

Sales at sporting goods, music and book stores fell 3% while gasoline station receipts were off 1.3% as a tick down in fuel costs saw prices at the pump move lower.

On a year-over-year basis, retail sales overall rose 13%, pushed higher by a 33.4% surge in gasoline station sales and a 21.9% burst in clothing stores.

The numbers came with the economy facing the worst inflation in 40 years, which helps feed into the retail sales numbers. The Federal Reserve is expected to enact multiple interest rate hikes this year to combat rising prices, with markets looking for the central bank to boost its benchmark short-term borrowing rate by perhaps half a percentage point in March.

In nominal terms, real spending increased at a 3.3% annualized pace from October 2021 through January 2022, according to Capital Economics. However, the firm cautioned that, when adjusted for inflation, real spending actually declined at a 6.8% pace during the period.

A separate report Wednesday showed that industrial production jumped 1.4% in January, much higher than the 0.5% forecast. Capacity utilization increased 1 percentage point to 77.6%, its highest since March 2019.

Also, inventories rose 2.1% in December, in line with expectations. The National Association of Home Builders index for February came in at 82, also in line with estimates but a slight decline from January.