US Retail Sales Surge Again, And Manufacturing Is Improving


02/16/2023



After two consecutive months of declines, US retail sales increased in January for the first time in nearly two years as consumers increased their purchases of automobiles and other goods, demonstrating the economy's ongoing resilience despite higher borrowing costs.
 
The Federal Reserve may continue raising interest rates through the summer to reduce domestic demand, according to financial market rumors that followed Tuesday's report that monthly inflation increased last month.
 
Strong retail sales increases and other data released on Wednesday showing improved factory output in the previous month prompted economists to upgrade their predictions for first-quarter economic growth and rule out the possibility of a recession.
 
However, expectations of a downturn in the second half are being held back by worries that the American central bank may increase borrowing costs more than is currently anticipated.
 
"Every day the economy does not lose steam, the risks go up astronomically that the Fed will lose patience and make those recession forecasts a reality by jacking up rates too high," said Christopher Rupkey, chief economist at FWDBONDS in New York. "There's no roadmap for the central bank seeing data like this."
 
Retail sales increased 3.0% last month, the most since March 2021, according to the Commerce Department, following a decline of an unrevised 1.1% in December.
 
Sales were expected to increase 1.8%, according to economists surveyed by Reuters; estimates ranged from 0.5% to 3.0%. In January, retail sales soared 6.4% over the previous year. The majority of retail sales are of goods, and they are not inflation-adjusted.
 
The front-loading of holiday shopping, which economists claimed had not been fully taken into account by the model the government uses to strip out seasonal fluctuations from the data, was cited as the cause of the decline in sales in the previous two months.
 
Retail sales in January were probably inflated by the so-called seasonal adjustment factors, and some economists anticipated a decline in retail sales in February.
 
Seasonal adjustment factors were partly to blame for the astronomical job growth in January.
 
"The bottom line is that the underlying trend in consumption is not as weak as the December numbers indicated, but is also not as strong as the January numbers might suggest," said Lou Crandall, chief economist at Wrightson ICAP.
 
However, despite technical distortions, Americans continue to spend.
 
Based on an examination of data from Bank of America credit and debit cards, the Bank of America Institute last week reported a spike in spending in January. Even though lower-income consumers are under pressure, this suggests that they still have strong cash reserves and borrowing capacity, the article stated, noting that "even for the lowest-income cohorts this should provide support for some time yet."
 
Spending on services increased, according to Citi card data.
 
Motor vehicle purchases accounted for the majority of the last month's overall increase in retail sales, with auto dealer receipts growing by 5.9%. Despite rising gas prices, service station sales were unaffected. Retail sales online increased by 1.3%.
 
Sales in furniture stores increased 4.4%. The only services category in the retail sales report—receipts at eating and drinking establishments—rose 7.2%. Sales at electronics and appliance stores increased 3.5%.
 
Additionally, clothing store sales as well as general merchandise, health, and personal care store receipts all saw significant increases. Retailers of sporting goods, hobbies, and musical instruments barely increased by 0.2%, while sales at suppliers of building supplies and gardening tools increased by 0.3%.
 
The price of stocks was falling on Wall Street. Against a basket of currencies, the dollar increased. Treasury prices dropped.
 
In addition to credit card debt, the biggest cost of living adjustment since 1981 for more than 65 million Social Security beneficiaries, which went into effect in January, is likely what helped retail sales. The minimum wage was increased in several states as well.
 
Although the rate has slowed, the tight labor market, which is characterized by the lowest unemployment rate in more than 53 years, continues to produce strong wage growth. Since last March, the Fed has increased its policy rate by 450 basis points, moving it from near zero to a range of 4.50%–4.75%, with the majority of the increases occurring between May and December. In March and May, two more rate increases of 25 basis points are anticipated.
 
The financial markets anticipate a further rise in June.
 
The government announced on Tuesday that the pace of deflation in the year-over-year rate slowed and that consumer prices increased in January.
 
"The resiliency of the consumer will likely add to the Fed's desire to keep rates higher for longer to help rebalance demand and supply in the economy," said Conrad DeQuadros, senior economic advisor at Brean Capital in New York.
 
Retail sales increased 1.7% last month when cars, gas, building supplies, and food services were excluded. The unrevised 0.7% decline in December was followed by the biggest increase in so-called core retail sales in a year.
 
The portion of gross domestic product that represents consumer spending most closely resembles core retail sales. JPMorgan increased its estimate for first-quarter GDP growth from 1.0% to 2.0% annualized. The tracking estimate from Goldman Sachs was increased by 0.6 percentage points to 1.4%. In the fourth quarter, the economy grew at a 2.9% annual rate.
 
Despite a decline in manufacturing production, it seems that the industry would only experience a small recession. In a different report released by the Fed on Wednesday, manufacturing output increased by 1.0% in January.
 
According to a third report, business conditions in New York State improved in February, and businesses are becoming more optimistic about the coming six months. However, cautious inventory management by businesses may prevent a manufacturing rebound.
 
"Activity still looks set to face challenges this year," said Tim Quinlan, a senior economist at Wells Fargo in Charlotte, North Carolina.
 
(Source:www.latestly.com)