Retail sales increased significantly more than predicted in January, as customers persisted despite mounting inflationary pressures.
The Commerce Department said Wednesday that advance retail sales for the month jumped 3%, compared to estimates for a 1.9% increase. Sales grew 2.3% excluding automobiles, according to the study, which was not adjusted for inflation. The ex-autos forecast was for a 0.9% increase.
Food services and drinking establishments increased 7.2%, leading all major sectors. Automobile and parts dealers climbed by 5.9%, while furniture and home furnishing businesses increased by 4.4%.
Despite a 2.4% increase in gas prices, service station receipts were steady. Online shops grew by 1.3%, while electronics and appliance stores grew by 3.5%.
Following a 1.1% drop in sales in December, no categories witnessed a drop.
Retail sales grew 6.4% year on year, exactly in line with the consumer price index movement released Tuesday.
Following the announcement, markets fell, with major indices falling marginally in the morning session.
Other economic developments According to Fed data, industrial production was flat in January, compared to the 0.4% increase expected.
While manufacturing input increased by 1% and mining output increased by 2%, utilities fell by 9.9%, owing to an unusually warm start to the year. In addition, capacity utilization fell 0.1 percentage point to 78.3%, falling short of the 79% target.
“The monthly figures on industrial production, retail sales, and jobs were generally stronger than predicted and indicate a recovery in economic activity in early 2023 after a bad patch in late 2022. “Recent activity data will be interpreted by the Fed as supporting plans for future interest rate rises in the first half of this year,” said Bill Adams, chief economist at Comerica Bank.
According to the Labor Department, inflation as measured by the consumer price index increased by 0.5% in the first month of the year. According to the sales data, despite rising inflationary pressures, customers continued to spend.
The news comes as the Federal Reserve deals with rising prices that look to be slowing but are still considerably above the Fed’s 2% annual target.
Several Fed officials weighed out on Tuesday, each saying that while they perceive some improvement, there is more work to be done.
“I am sure that the gears of monetary policy will continue to work in a way that will bring inflation down to 2%. “We will stay the course until our mission is completed,” stated New York Fed President John Williams.
Markets currently anticipate the Fed raising interest rates by a quarter percentage point at each of its next two meetings, followed by a pause to review the impact of the monetary policy actions on inflation, the labor market, and overall economic growth.
Consumer spending accounts for over two-thirds of all economic activity in the United States. Fed rate rises are intended to reduce demand while supply tries to catch up, as well as to affect rate-sensitive industries such as housing, which had a boom during the Covid epidemic.
There is an indication that the increases are having an effect, while inflation remains persistent and might be exacerbated by China’s economic reform and Europe’s rising recovery.