Bloomberg is reporting this week that U.S. retail sales surged in January “by the most in seven months, beating all estimates and suggesting fresh stimulus checks helped spur a rebound in household demand following a weak fourth quarter.”
The value of overall sales increased 5.3% from the prior month after a 1% decline in December, the Department of Commerce (DOC) report said. “It was the first monthly gain since September. All major categories showed sharp advances,” DOC said.
Ahead of the report, the median estimate in a Bloomberg survey of economists called for a 1.1% monthly gain in retail sales.
A surge in COVID-19 cases curbed spending at year-end, but since then, virus cases have ebbed and states have started to ease some restrictions on businesses and activity. The ability to shop and eat out, paired with the latest round of $600 stimulus payments, helped drive spending increases across a variety of categories, Bloomberg said.
The jump in retail sales could further embolden Republican opposition to President Biden's $1.9 trillion stimulus plan which many in the GOP already criticize as “too big,” Bloomberg said. Even so, Democrats are on track to narrowly pass the package without Republican votes – and the new retail sales data could also be held up as evidence of how critical relief payments are to the economy and jobs.
The report shows that “when fiscal aid arrives to household balance sheets, it does get turned around fairly quickly and materializes in economic activity,” Michael Gapen, chief U.S. economist at Barclays Plc, said.
With another stimulus package likely in March, “we should see a pretty rapid acceleration in demand and household spending as we move into the into the second quarter, which could be continued if vaccinations continue apace, and mobility gradually recovers over time,” Gapen said.
Non-store retailers' sales, which includes online stores, rose 11%, the most in two years. Food services and drinking places rose 6.9% as restrictions eased at restaurants and bars across the country. Furniture stores, and electronics and appliance merchants also saw double-digit gains in the month.
The so-called “control group” subset of sales, which excludes food services, car dealers, building-materials stores and gasoline stations, rose 6%, the largest gain since June.
Bloomberg said its own economists reported that “The strength and composition of retail sales (specifically the tilt toward discretionary categories) is an encouraging signal that consumers' aggressive saving patterns from 2020 are starting to ease—a development which, if sustained, could unleash a torrent of pent-up demand in 2021.”
The report noted that gas station receipts rose 4%, at least in part reflected higher fuel prices. The retail figures aren't adjusted for price changes, so sales also reflect changes in gasoline costs. At the end of January, the average nationwide price for a gallon of gasoline was $2.42 – roughly in line with pre-pandemic prices.
Other data from the Labor Department showed producer prices increased 1.3% in January, the biggest gain in records dating back to 2009, driven by broad-based gains in categories including energy and food.
The core measure, which excludes energy and food, jumped by 1.2% – also the most in records – over the prior month. Meanwhile, the core consumer price index – a key measure of prices paid by U.S. consumers – was unchanged in January for a second straight month, pointing to the pandemic's lingering restraint on inflation.
A separate report from the Federal Reserve on Wednesday “showed manufacturing extended its recovery in early 2021. Output rose in January by more than forecast, though it remained 1.9% below the pre-pandemic level.”
Bloomberg also noted that the National Association of Home Builders showed increased confidence among residential construction firms in February as the allure of low interest rates generated more prospective buyer traffic. Still, rising construction costs threaten to slow demand, Bloomberg warned.
So, we will see. The declines in COVID-19 cases are clearly good news, as are the stronger retail markets. Still, the threats from the virus are very significant and efforts to test and vaccinate continue to be extremely important — key trends producers should watch closely as they emerge, Washington Insider believes.