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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.
Trending in Economy
Labor disputes on the West Coast could cause further disruption heading into peak season.
When the first half of 2023 is complete, imports are expected to dip 22% below last year.
That’s according to new data from the Global Port Tracker, which is compiled monthly by the National Retail Federation and Hackett Associates.
The decline has been building over the entire year, as imports dipped in the winter. With the spring, volume started to rebound. In April, the major ports handled 1.78 million Twenty-Foot Equivalent Units. That was an increase of 9.6% from March. Still it was a decline of 21.3% year over year – reflecting the record cargo hauled in over the spike in consumer demand of 2021 and the inventory glut 2022.
In 2023, consumer spending is remaining resilient with in a strong job market, despite the collision of inflation and interest rates. The economy remains different from pre-pandemic days, but shipping volumes are beginning to once again resemble the time before COVID-19.
“Economists and shipping lines increasingly wonder why the decline in container import demand is so much at odds with continuous growth in consumer demand,” said Hackett Associates Founder Ben Hackett, in a statement. “Import container shipments have returned the pre-pandemic levels seen in 2019 and appear likely to stay there for a while.”
Retailers and logistics professionals alike are looking to the second half of the year for a potential upswing. Peak shipping season occurs in the summer, which is in preparation for peak shopping season over the holidays.
Yet disruption could occur on the West Coast if labor issues can’t be settled. This week, ports from Los Angeles to Seattle reported closures and slowdowns as ongoing union disputes boil over, CNBC reported. NRF called on the Biden administration to intervene.
“Cargo volume is lower than last year but retailers are entering the busiest shipping season of the year bringing in holiday merchandise. The last thing retailers and other shippers need is ongoing disruption at the ports,” aid NRF Vice President for Supply Chain and Customs Policy Jonathan Gold said. “If labor and management can’t reach agreement and operate smoothly and efficiently, retailers will have no choice but to continue to take their cargo to East Coast and Gulf Coast gateways. We continue to urge the administration to step in and help the parties reach an agreement and end the disruptions so operations can return to normal. We’ve had enough unavoidable supply chain issues the past two years. This is not the time for one that can be avoided.”