Retail Sales Jump as Americans Defy Inflation and Rate Hikes

February 15, 2023by Christopher Rugaber, Associated Press Economics Writer
Retail Sales Jump as Americans Defy Inflation and Rate Hikes
Shoppers pass an large L.L. Bean boot displayed outside an L.L. Bean store in Pittsburgh, Pa., on Monday, Jan. 30, 2023. (AP Photo/Gene J. Puskar)

WASHINGTON (AP) — America’s consumers rebounded last month from a weak holiday shopping season by boosting their spending at stores and restaurants at the fastest pace in nearly two years, underscoring the economy’s resilience in the face of higher prices and multiple interest rate hikes by the Federal Reserve.

The government said Wednesday that retail sales jumped 3% in January, after having sunk the previous two months. It was the largest one-month increase since March 2021.

Driving the gain was a jump in car sales, along with healthy spending at restaurants, electronics stores and furniture outlets. Some of the supply shortages that had slowed auto production have eased, and more cars are gradually moving onto dealer lots. The enlarged inventories have enabled dealers to meet more of the nation’s pent-up demand for vehicles.

Wednesday’s robust retail sales figures, along with a strong January job report, suggest that the economy remains durable, perhaps even strengthening, and at little risk of succumbing to a recession anytime soon. Earlier this week, economists at Goldman Sachs reduced the likelihood of a recession this year from 35% to just 25%.

Brisk consumer spending, though, can also intensify upward pressure on inflation. The latest measure of consumer inflation showed it declined slightly on a year-over-year basis in January but rose sharply from December to January.

The combination of solid spending and hiring will also likely raise pressure on the Federal Reserve to raise its benchmark interest rate even further. The Fed has already signaled that it expects to carry out two more quarter-point hikes, to a range of 5% to 5.25%, which would be the highest level in 15 years. On Tuesday, Deutsche Bank said it expected the Fed to add two additional hikes on top of that this year, to a range of 5.5% to 5.75%.

Wednesday’s retail sales figures showed that spending at restaurants soared 7.2% in January, an increase that, in part, might have reflected warmer-than-usual weather. In the past year, restaurant spending has leapt more than 25%. The retail sales report isn’t adjusted for inflation, so some of that increase reflects higher prices. According to the government’s inflation report, restaurant prices have increased 8% in the past year.

Whether America’s shoppers can continue to spend briskly will help determine how the economy fares. The eight interest rate hikes the Fed has carried out in the past year have raised the costs of mortgages and auto loans as well as credit card interest rates. Inflation has also eroded workers’ paychecks, thereby limiting their ability to spend freely.

Yet for all the challenges, consumers continue to show resilience. Several factors likely helped propel last month’s spending. About 70 million recipients of Social Security and other government pension programs last month received an 8.7% boost in their benefit checks, an annual cost-of-living adjustment to offset inflation. It was the largest such increase in 40 years.

The job market also surged in January, with nearly a half-million new jobs added. The unemployment rate reached 3.4%, its lowest level since 1969. With many businesses still eager to hire and keep workers, average wages and salaries have risen about 5% from a year ago — among the fastest such rates of increase in decades.

Those raises have generally been eaten up by inflation. Still, consumer price increases have been slowing. And for many households, a sharp drop in gas prices since summer has freed up more money to spend.

As price increases have slowed, average wage gains have surpassed inflation in some months, lending some consumers additional spending power.

On Tuesday, the government reported that inflation eased again in January compared with a year earlier, the seventh straight such decline, to 6.4% from 6.5% in December. But on a month-to-month basis, price increases accelerated in January compared with November and December, evidence that high inflation won’t be defeated quickly or smoothly.

A+
a-
  • retail sales
  • In The News

    Health

    Voting

    Economy

    June 14, 2024
    by Dan McCue
    Nation’s Top Business Leaders Host Trump, Rate Economy ‘Stable’

    WASHINGTON — The Business Roundtable, the exclusive group of businesses that is also one of the most powerful lobbying organizations... Read More

    WASHINGTON — The Business Roundtable, the exclusive group of businesses that is also one of the most powerful lobbying organizations in the nation, played host to former President Donald Trump on Thursday, and also released its quarterly assessment of the U.S. economy. At least 80 of... Read More

    May 21, 2024
    by Dan McCue
    With Memorial Day Approaching, White House Moves to Keep Gas Prices Low

    WASHINGTON — With Memorial Day weekend fast approaching and the summer driving season just around the corner, the Biden administration... Read More

    WASHINGTON — With Memorial Day weekend fast approaching and the summer driving season just around the corner, the Biden administration announced it will sell 1 million barrels of gasoline from federal reserves to lower prices at the pump for all Americans. Energy Secretary Jennifer Granholm said... Read More

    April 12, 2024
    by Kate Michael
    IMF Director Sets the Stage for IMF-World Bank Spring Meetings 

    WASHINGTON — As the world's finance ministers and central bank governors prepare to convene in Washington, D.C., for the IMF-World... Read More

    WASHINGTON — As the world's finance ministers and central bank governors prepare to convene in Washington, D.C., for the IMF-World Bank spring meetings next week, Kristalina Georgieva, managing director of the International Monetary Fund, spoke about how this event comes at a delicate moment for the... Read More

    April 8, 2024
    by Dan McCue
    Biden Administration Invests $6.6B to Bolster US Chip Manufacturing

    WASHINGTON — The Biden administration is awarding up to $6.6 billion in grants to the Taiwan Semiconductor Manufacturing Company, the... Read More

    WASHINGTON — The Biden administration is awarding up to $6.6 billion in grants to the Taiwan Semiconductor Manufacturing Company, the largest maker of the most advanced microchips in the world, to help support construction of the company’s first major hub in the United States. The announcement... Read More

    Inflation Slowed Further in December as Economic 'Soft Landing' Moves Into Sharper Focus

    WASHINGTON (AP) — The Federal Reserve’s preferred inflation gauge cooled further last month even as the economy kept growing briskly, a... Read More

    WASHINGTON (AP) — The Federal Reserve’s preferred inflation gauge cooled further last month even as the economy kept growing briskly, a trend sure to be welcomed at the White House as President Joe Biden seeks re-election in a race that could pivot on his economic stewardship. Friday’s... Read More

    Americans' Economic Outlook Brightens as Inflation Slows and Wages Outpace Prices

    WASHINGTON (AP) — After an extended period of gloom, Americans are starting to feel better about inflation and the economy —... Read More

    WASHINGTON (AP) — After an extended period of gloom, Americans are starting to feel better about inflation and the economy — a trend that could sustain consumer spending, fuel economic growth and potentially affect President Joe Biden's political fortunes. A measure of consumer sentiment by the University of Michigan has... Read More

    News From The Well
    scroll top