US retail sales jumped by the most in seven months in January, boosted by a second round of stimulus cheques and relaxed curbs on businesses as a resurgence of coronavirus slowed.
Sales were up 5.3 per cent on a seasonally adjusted basis against the previous month, the US Census Bureau said on Wednesday. It was the first monthly increase in retail sales in four months, coming on the heels of a 1 per cent drop in December that signalled weaker spending during the holiday season.
The figure surged past economists’ expectations, beating a forecast of 1.1 per cent growth. On an annual basis, retail sales rose 7.4 per cent versus January 2020.
The turnround in retail sales offers the latest evidence of the power of fiscal stimulus to quickly boost the pandemic-battered US economy, as Congress debates President Joe Biden’s plan for $1.9tn in further spending. While this could help Democrats argue that government aid is quickly being spent to help sustain the recovery, Republicans who are resistant to further stimulus may claim that it is unnecessary since the economy is already rebounding from its winter slump.
The rise in retail sales in January came after Americans received payments of up to $600 from the US Treasury, one of the provisions in a $900bn relief bill signed by Donald Trump at the end of last year. That legislation also expanded unemployment benefits, which began to flow to claimants last month and is likely to have provided further support for higher spending.
Michael Pearce, senior US economist for Capital Economics, said the retail figures showed how quickly business reopenings and $600 cheques “fed through to stronger spending”.
“Those outsized gains in big-ticket discretionary items suggest that the $900bn fiscal stimulus, passed late last year, is working as intended,” Pearce added. He cautioned that spending was likely to pull back in February.
During a televised town hall meeting in Wisconsin on Tuesday night, Biden said the US economy would come “roaring back” if Congress passed his stimulus plan. Some economists, including Larry Summers of Harvard University, have warned this could lead to a surge in inflation — but Janet Yellen, the Treasury secretary, and Jay Powell, the Federal Reserve chair, have dismissed those fears.
The latest retail data indicated that demand picked up across all categories including cars, electronics, recreational goods, grocery stores, building materials and home goods such as furniture. Sales at non-store retailers, which includes ecommerce, climbed 11 per cent as consumers continued to favour online shopping over visits to brick-and-mortar outlets during the pandemic.
Food services such as restaurants and bars — one of the sectors hit hardest by the pandemic and coronavirus-related restrictions — rose 6.9 per cent.
“The recovery in the sectors worst hit by the pandemic still has some way to go, with overall retail spending in bars, restaurants, clothing stores and on gasoline well below levels seen a year ago,” Pearce said.
Data on Wednesday also showed a 1.3 per cent increase in the prices that businesses receive for their goods and services, the biggest gain since the US labour department launched the index in 2009 and a further sign of strengthening demand.
The report will add to concerns that inflation is on the rise, according to analysts at Oxford Economics. But “the snapback reflects a revival of demand and ongoing bottleneck pressures that should stabilise in the coming months”, they said.
“Further, with businesses lacking pricing power, it is not likely all these price pressures are passed through to the consumer.”
Powell said last week that the central bank would be “patiently accommodative”, noting that the US could see periods of strong spending growth and upward pressure on prices as the recovery gathered pace.
The jump in the producer price index reflected higher petrol prices, as well as gains in portfolio management, outpatient care, guest room rentals and apparel.