U.S. retail sales for January rose a hefty 5.3% as stimulus checks provided consumers the necessary cash to shop for the 2020 holiday season, a reversal from several months of consecutive declines, according to a Feb. 17 release from the U.S. Census Bureau.
“Consumer spending is firing on all cylinders,” James Knightley, an economist at ING Financial Markets LLC, told the Wall Street Journal on Feb. 17. An indicator of store, restaurant, and online purchases, the number is up after December 2020 sales saw a net value of –1%. All sales, excluding automobiles, were up nearly 6%.
The issuance of $600 stimulus checks to millions of Americans under former President Donald Trump played a prime role in the boost. Electronics and appliances saw the most significant increase in sales, up 14.7% for the month. Furniture and home furnishing stores were up 12%, while food and drink establishments rose 6.9%. Data from the Federal Reserve found that consumers primarily saved their checks or used them to pay down debts. Americans saved an average of 36% of their payments, while 35% of the payments were used to pay down debt.
“It’s hard not to see a message here that the stimulus worked in January to support a turnaround after a decline in early winter,” Robert Rosener, senior U.S. economist at Morgan Stanley, said Feb. 17 to the Journal.
Economists have optimism for the future ahead as vaccine distribution brings back jobs from hard-hit sectors, such as bars and restaurants, and allows for more spending on items like haircuts, vacations, movie tickets, and elective medical procedures.
“In this unusual recession, governments have been unusually generous, people have not been able to spend the money, and hence they have the money and the will to spend,” said Berenberg’s chief economist Holger Schmieding. “There will be a lot of spending—my guess is that beaches will be crowded, the pubs will be crowded. By May or June, it will be in full swing.”
President Joe Biden and congressional Democrats recently proposed another $1.9 trillion coronavirus stimulus package with additional $1,400 checks and additional funding for social programs and vaccine distribution. They are generally popular with the American public, as a Feb. 5 poll from Quinnipiac University found that 78% of Americans favor the $1,400 checks, compared to 68% who support Biden’s overall $1.9 trillion package.
While stimulus has helped strengthen economic conditions, inflation is now a broader concern as the global economy slowly emerges into a post-COVID world. The Producer Price Index (PPI) published by the Bureau of Labor Statistics (BLS) increased 1.3% in January alongside the jump in consumer spending, according to a Feb. 17 report.
In its 2020 CPI review, BLS reported prices for all six of the major grocery store food groups increased from 2019 to 2020. Prices for meats, poultry, fish, and eggs rose nearly 5% from 2019 to 2020, about twice as much as the 2018 to 2019 period. Prices for fruits and vegetables rose 3.2% in 2020.
Inflation will “rise briskly” the next few months, according to BCA Research chief global strategist Peter Berezin in a Jan. 25 note to reporters. Because prices dropped last spring, the price rebound seen in the past year will register as a large increase as inflation is reported in year-over-year changes.
