Inflation and the omicron surge did not deter American consumers from beginning the year on a strong note as retail sales rebounded sharply in January.
Purchases at retail stores, restaurants and online rose 3.8%, outstripping inflation for the first time in three months, the Commerce Department reported on Wednesday. After adjusting for inflation, our estimate for the top-line series in real terms remained strong at close to 3.2%.
Sales at motor vehicle and parts dealers led the recovery in January with a 5.7% increase, making up some lost ground from the previous months because of the chip shortage. Auto sales account for about 20% of total retail sales every month.
More supply has been produced since September, when the delta wave made its global impact on supply chains. That said, inventories for passenger cars remained at a multi-decade low in the past three months, according to the Bureau of Economic Analysis in a separate report. That low level suggest there is room for auto sales to continue to improve.
The control group—which feeds into the calculation of gross domestic product—registered a solid gain on the month, up by 4.8% in dollar terms. That nominal growth guarantees a wide margin for an increase in real retail sales, which adjust for inflation, as monthly inflation held steady at 0.6% in January, suggesting a possible increase to the forecast of the private consumption component of GDP in the first quarter. Official data on real sales often lags its nominal version by several months.
The impact of the omicron surge was muted in January’s sales data as consumer spending has become less sensitive to the COVID-19 impact after each wave.
On top of that, the shift in shopping behaviors in the last quarter of 2021, which caused December sales to fall sharply on a seasonally adjusted basis, likely added a certain level of seasonal quirk to the sales increase in January. We believe that the report is ripe for major adjustments for COVID-19 distortions, which happened to the Bureau of Labor Statistics’ payroll and consumer price index reports this month.
A similar pattern occurred more than a year ago, when the second COVID-19 wave decimated sales revenue during the holiday season, dragging down retail sales by 1.5% and 0.8% in November and December 2020, respectively. As the second wave retreated from its peak that December, retail sales rebounded immediately, rising by 7.6% the following January.
The nonstore sales component recently also followed the same story: It rose sharply in October because of early holiday shopping, declined significantly in November and December only to bounce back again by 14.5% in January.
It is important to note that the advance data will be subject to revision as it comes from a random sample of only 5,500 firms out of more than 3 million. December’s reading for the top-line number was revised downwardly to a decline of 2.5% from a decline of 1.9%.
The takeaway
Even as demand has moderated, supply bottlenecks remain the biggest challenge to sales growth. Recent improvement in the supply chains, according to the RSM US Supply Chain Index, will give retailers more confidence to expect higher sales in the coming months.
The beginning of a post-pandemic world seems to be closer than ever. With that, as fiscal and monetary policy measures continue to fade, we should expect retail sales growth to return to its pre-pandemic average relatively soon.
