Retail Sales Surprise to the Upside as Sector Normalizes
Consumers defied expectations with stronger than expected spending in January, giving the year a boost right out of the gate.
Given inflation and longer-term trends, the gains were seen as a sign of a solid consumer — a normalization, not a return to the go-go days.
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Retail and food service sales increased 6.4 percent compared with January 2022, according to the Census Bureau’s official monthly tally. Seasonally adjusted sales, comparing January with December, rose 3 percent — well ahead of the 1.7 percent gain projected by economists on average.
Seasonal adjustments factor out calendar and other changes to show month-to-month momentum in sales, but the adjustments also add complexity to the tally and can skew results.
January department store sales, for instance, jumped a seasonally adjusted 17.5 percent from December, but were up a milder 5.4 percent from a year ago. On the other hand, apparel and accessories specialty stores rose a seasonally adjusted 2.5 percent from December and were up 6.3 percent from a year ago.
Craig Johnson, president of Customer Growth Partners, called the seasonal adjusted figures “on the wacky side” and said: “People can get caught up in the noise. There was no giant growth in sales in January in department stores.”
Instead, Johnson said retail had returned to something much more run of the mill after a long stretch of extraordinary circumstances.
Excluding automobiles, gasoline and restaurants, Johnson said year-over-year retail sales grew 4.7 percent in January — nearly identical with the sector’s compounded annual growth over the past 20 years.
“We think that reflects the fact that the whole post-COVID-era rebound has finally run its course,” Johnson said. “This is a return to normalcy. People are rebalancing, they’re rebalancing inventory, their stores, their labor hours. Everybody is getting back to a more or less normal state of affairs.”
While that might be the case for retail, the economy is still off kilter.
Last month’s sales gains were diminished by inflation, which has pushed prices across the economy up 6.4 percent over the past year — a rate of growth that before the recent spike had not been seen in the U.S. since the early ’80s.
Consumers were ready to spend in January.
Jack Kleinhenz, chief economist for the National Retail Federation, said, “Sales were helped along by job and wage growth, slightly lower inflation and unusually warm and dry weather that preceded February’s record cold. A large cost-of-living adjustment gave Social Security beneficiaries more money to spend, and many consumers were still drawing on savings built up during the pandemic. January made up for the softer pattern of spending in December that came after early shopping pulled holiday spending forward this past fall.”
That is the kind of monthly give and take retailers are accustomed to.
Neil Saunders, managing director of GlobalData, said the year started on a “positive note,” but also saw a return to mean after a remarkable run, noting that sales last month marked a 30.2 percent increase from January 2020.
“This is an exceptional level of increase that shows retail continues to operate at an elevated level even after stimulus and other economic benefits have dried up,” Saunders said. “Of course, some of this is being funded by dwindling down savings and taking on extra debt so there is a question mark over the sustainability of this trajectory. However, for the time being it is increasingly clear that a majority of consumers are determined not to curtail their spending or consumption to any significant degree.”
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