U.S. Retail Sales Race to All-Time High; economy shows strength ahead of rate hikes

FILE PHOTO – – Automobiles are offered for sale at a car dealership in Carlsbad, California, U.S., May 2, 2016. REUTERS/Mike Blake/File Photo

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  • Retail sales rise 3.8% in January
  • December retail sales revised to show steeper decline
  • Core retail sales jump 4.8%; December revised down sharply

WASHINGTON, Feb 16 (Reuters) – U.S. retail sales rose the most in 10 months in January, pushing the level of sales to a record high amid increased purchases of motor vehicles and other goods, but higher prices could limit the increase in economic growth this quarter.

Wednesday’s Commerce Department report showed underlying strength in the economy ahead of planned Federal Reserve interest rate hikes from March, although retail sales in December were much weaker than originally planned.

“The strong rebound in retail sales in January, although partly in response to last year’s weak finish and inflated by higher prices, suggests consumers still have a long way to go to propel the expansion towards forward this year,” said Sal Guatieri, senior economist at BMO. Capital Markets in Toronto. “Rate hikes won’t cool their jets for a while, which will make the Fed’s job of bringing inflation down that much harder.”

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Retail sales jumped 3.8% last month, the biggest increase since last March. This took sales to their highest level since the government started tracking the series in 1992.

December data has been revised down to show sales fell 2.5% instead of 1.9% as previously reported. Economists polled by Reuters had forecast retail sales to rise 2.0%, with estimates ranging from 0.7% to 4.4%.

Retail sales rose despite consumer confidence falling to a decade low in recent months. Spending is supported by massive savings, high household wealth and a tightening labor market, although inflation is eroding wage gains.

The strong increase in sales was led by motor vehicles.

Auto sales typically fall in January after the holiday promotional season. Given the continued scarcity of motor vehicles due to a global shortage of semiconductors, last month’s decline was likely smaller than predicted by seasonal factors, the model used by the government to smooth out seasonal fluctuations. Datas.

This probably resulted in more generous seasonal factors than in previous years. Unadjusted auto sales were the highest for the month of January since 1992.

Economists expect this boost to fade in March. Auto sales could also fall, with a separate Fed report released Wednesday showing motor vehicle production fell in January for a second consecutive month. This dampened overall manufacturing output growth to 0.2% last month. Read more

“Despite some caveats on the retail sales report, we can at least be assured that consumers are not withdrawing their crucial support from the economy, even though they are experiencing a marked drop in confidence if they are not not downright depressed about what the future holds,” said Christopher Rupkey, chief economist at FWDBONDS in New York.

Shares on Wall Street fell as investors feared strong retail sales could give the U.S. central bank ammunition to aggressively tighten monetary policy.

Financial markets are pricing in an almost equal probability of a 50 basis point interest rate hike next month. Economists expect seven rate hikes this year.

Minutes from the January 25-26 Fed meeting released Wednesday showed that decisions to raise rates would depend on a meeting-by-meeting analysis of data. Read more

The Dollar (.DXY) slid against a basket of currencies as US Treasury prices were mixed.

WIDE GAINS

Retail sales last month were also boosted by higher prices due to shortages in tight supply chains. They are mostly made up of goods and are not adjusted for inflation.

Economists estimated retail sales rose about 2.8% in January after adjusting for inflation, putting them back in line with their pre-pandemic trend.

Revenues at auto dealers rebounded 5.7% after falling 1.6% in December. Sales at electronics and appliance stores rose 1.9%. Sales at building supply stores jumped 4.1%. There were also gains in receipts from food and beverage stores as well as clothing retailers.

But sales at sporting goods, hobby, musical instrument and book stores fell 3.0%, suggesting consumers were cutting back on discretionary spending, likely due to the inflation. Sales at gasoline stations fell 1.3% due to lower gasoline prices.

Restaurant and bar receipts fell 0.9% as COVID-19 infections, driven by the Omicron variant, reduced mobility. Restaurants and bars is the only service category in the retail sales report. Online retail store sales jumped 14.5%.

Excluding automobiles, gasoline, building materials and food services, retail sales jumped 4.8% in January. Data for December has been revised down to show these so-called core retail sales fell 4.0% instead of 3.1% as previously reported.

Core retail sales correspond most closely to the consumer spending component of gross domestic product.

Retail sales

Economists estimated that inflation-adjusted core retail sales rose 2.7% last month. It is the so-called core real retail sales that matter in measuring the growth of consumer spending.

Strong real core retail sales in January suggested that consumer spending this quarter is unlikely to be as weak as economists had expected. Real consumer spending fell 1.0% in December, putting consumption on a slower growth path.

“Recent data volatility makes it difficult to detect the underlying trend, but recent momentum in consumer spending now looks stronger than we expected,” said Daniel Silver, an economist at JPMorgan in New York. .

Consumer spending growth estimates are mostly below an annualized rate of 2.0%. Consumer spending, which accounts for more than two-thirds of US economic activity, grew at a 3.3% pace in the fourth quarter.

Goldman Sachs economists raised their estimate for first-quarter GDP growth by 1.5 percentage points to a rate of 2.0%. The economy grew at a 6.9% pace in the fourth quarter. Growth in 2021 was the strongest since 1984.

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Reporting by Lucia Mutikani; Editing by Chizu Nomiyama, Paul Simao and Andrea Ricci

Our standards: The Thomson Reuters Trust Principles.

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