January’s retail sales show consumers continue to spend

The news: Retail sales in January rose by a seasonally adjusted 3.8% from the prior month, as people in the US bought more cars, furniture, and electronics, per the US Commerce Department’s monthly report. Sales were up 13.0% year over year (YoY).

  • This was the largest monthly gain since last March, when households were receiving pandemic-related stimulus checks. 
  • Economists polled by The Wall Street Journal had expected a 2.1% gain. 
  • The gain was a rebound from December, when sales fell 2.5%

More on this: The spending gains were evident across a number of key categories. 

  • Nonstore spending, which is largely made up of ecommerce sales, rose 14.5%.
  • Furniture sales increased 7.2%.
  • Vehicles and auto parts rose 5.7%.

Spending at restaurants and bars fell about 1%, which is likely the result of the omicron variant keeping more people at home.

Inflation’s impact: Inflation played a role in the spending totals as prices rose 0.6% in January. 

  • Unlike other economic data reports produced by the US government, retail sales aren’t adjusted for inflation, which means retail sales gains may reflect higher prices rather than more purchases.
  • About one-third of the increase in retail sales in 2021 was due to inflation, and that share will rise to about 60% this year, said Craig Johnson, founder of Customer Growth Partners, in an interview with The Wall Street Journal. 
  • That would mean that consumers’ spending power is eroding. While wages have risen sharply, they have not kept pace with consumer inflation, which rose at its fastest pace in nearly 40 years in January. 

Looking ahead: Retail brands have differing perspectives on whether the inflationary headwinds will hinder their growth. 

  • Shopify expects inflation will have a short-term impact on consumer spending, per the company’s press release. The ecommerce platform provider forecasts ecommerce spending to decelerate due to a “more measured macro environment relative to 2021,” when lockdowns and government stimulus fueled ecommerce growth. 
  • La-Z-Boy believes demand will remain strong, although the company warns its growth will be hindered by global supply chain disruptions, said CFO Robert Lucian  during La-Z-Boy’s earnings call.
  • Mattel expects to start 2022 with strong top-line growth, although CFO Anthony DiSilvestro said margins would be impacted by inflation during the company’s earnings call.

The takeaway: Despite inflation and the surging omicron variant, consumers continued to spend in January. That’s a clear sign that the US economy remains strong.