Retail sales post strong gains in January, though it may not last

REAL ECONOMY BLOG | February 15, 2023

Authored by RSM US LLP

Retail sales in the United States posted a stronger-than-expected rebound in January after two straight holiday months of disappointing declines.

Sales increased by 3.0% on the month and by 2.3% if automobiles are excluded, according to the U.S. Census Bureau. Evan after controlling for inflation, sales volume remained strong at around 2.7%.

That highlights how sales data has been quite noisy in the early months of the past few years because of significant seasonal disruptions caused by the timing of different COVID-19 waves.
Shopping patterns have shifted in recent years.

Now, holiday sales start early in October, only to cool off in November and December. That, in turn, is followed by a sharp increase in January. All sales data is reported on seasonally adjusted basis

If the pattern continues, we should expect another solid month of growth in February. But that might be offset by the current economic conditions, which are different from a year ago as both monetary and fiscal supports have faded, while excess savings are being spent at a faster clip.

The closely watched control group—which excludes the most volatile components like restaurants, gasoline, building materials and autos—grew at a solid 1.7% in January. The group is a key in the calculation of gross domestic product in the first quarter.

Still, it is important to remain cautious. Last year, the control group rebounded at 3.7% in January, and then dropped by 0.8% in February. Given the current economic conditions, we are getting much closer to the end of a business cycle than we were a year ago despite the urge to call the first two quarters of last year a technical recession.

Wednesday’s sales data reaffirmed our base forecast for a mild recession in the second half of this year; it should take the same amount of time for consumers to dry up their excess savings just as overall spending drops off.

Inside the data

Sales growth was broad-based with all categories posting gains in January, led by food services and auto sales, which were up by 7.19% and 5.9%, respectively.

Gains were also driven by sales of furniture and electronics at 4.1%, followed by sales at general merchandise stores at 3.2%.