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Economic Outlook: Why the surge in retail sales is not as good as it looks


The big burst in sales at U.S. retailers in January was a good sign for the economy, but the increase was not as hot as it looked.

Retail sales sizzled 3.8% last month, the government said Wednesday. Taken at face value, it was the biggest advance since the Biden administration sent out stimulus checks last spring.

Yet the rebound in sales came after a sharp 2.5% decline in December. So some of the increase in last month was just payback after poor results at the end of last year.

Not only that, soaring inflation also accounted for part of the increase in retail sales. Consumer prices jumped 0.6% in January, which means Americans are paying more for the same amount of goods and services.

There’s even more to it.

The government’s math for determining retail sales has always been quite finicky, prone to large do-overs and difficulty in adjusting for seasonal swings. The pandemic has only made these problems worse.

Take the revisions the government does each month.

The drop in sales in December was initially reported as 1.9%. Then the decline was put at 2.5% based on the revisions included in the January retail report.

Don’t be surprised if the spike in January sales is revised down next month, some economists say.

What’s more, the government’s process for seasonal adjustments appears to have developed a nasty habit toward the end of the holiday shopping season.

The process seems to make the January numbers look better and the December numbers look worse than they really are.

In four of the past five years, for instance, the government has reported a sharp drop in retail sales in December and then a big gain in January. That is, after seasonal adjustments.

By contrast, retail sales rose in every December except one from 2009 to 2017.

In truth, raw or actual retail sales actually increase sharply every December and they sink in January. The seasonal adjustments are meant to smooth over these huge swings at the end of each year and try to get at the underlying trend.

Some economists don’t think the government is succeeding.

“The January data tell us exactly as much about the state of U.S. consumers, financial and otherwise, as the December data told us, which is next to nothing,” said chief economist Richard Moody of Regionsl Financial.

Others were not quite as downbeat, though.

Aneta Markowska, chief economist at Jefferies, told clients in a note that “even if we average the last two months, the level of retail sales is still in a rising trend.”

What is clear is that retail sales have slowed since the end of government stimulus last spring.

The increase in sales over the past 12 months slipped to 13% in January, the smallest gain in almost a year.

The Fed: Fed’s Kashkari thinks inflation will slow down markedly this year

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