US retail sales get post-holiday bounce

In some years, January is a time of lull for retailers. But these unusual times gave way to another twist, as retail sales rose to start the year, providing a post-holiday boost to retailers who have been fretting over a pullback in consumer demand.

The U.S. Commerce Department released the following data for January 2023 on Wednesday:

• Overall retail sales rose 3% on a monthly basis, totaling $697.0 billion.
• On an annual basis, retail sales rose 6.4%.
• Nonstore retailers, which includes ecommerce, rose 1.3% for the month and 3% for the year.
• Core inflation, which leaves out, auto and food measures, was up 1.5% from December and 4.8% for the year, according to the National Retail Federation.

The report showed strong sales, indicating that demand is continuing apace despite the collision of interest rates and inflation. Nearly every category measured by the Commerce Department reported an increase in sales for the month. In particular, clothing, sporting goods and general merchandise stores posted strong results.

The only exception was electronics, which saw sales fall 6.3% on an annual basis following a period of heavy holiday discounting. While supply chain issues continue in this category, it could also be a sign of consumers pulling back on big-ticket purchases, said GlobalData Managing Director Neil Saunders.

“Consumer spending clearly picked up after the holidays,” said National Retail Federation Chief Economist Jack Kleinhenz, in a statement. “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.”

Despite the increases, concerns remain about the growth trends, especially as retailers observe consumers buying lower quantities of goods as a result of rising prices.

“Retail has started the new year on a positive note, with a solid increase in total sales,” Saunders said. “Retailers will see this as a win as it is clear that, despite a modest slowdown in growth compared to most of last year, there has been no significant erosion in consumer spending power. That said, the annual rate of growth – which is running at 6.4% – is only modestly above the inflation rate for retail, which means volume growth is much thinner and, in some categories, is negative.”

Saunders concluded that it was a “satisfactory” start to the year, but concerns remain that it may only prove to be a breather. Economic forecasts are calling for growth to curtail, and Saunders added that “question marks remain over whether performance will deteriorate as this year progresses.”

In the context of recent months, however, this was a fairly status quo report. Paired with Tuesday's Consumer Price Index report that showed only a slight decrease of inflation and another strong jobs report this month, the data to start the year indicates that the economic picture remains the same as it was for the second half of 2022: A robust job market is driving consumer spending, but inflation is remaining stubborn on the way down.