Retail sales forged higher to a new all-time record last month, rising 0.3% to $381.6 billion in January on a seasonally adjusted basis, according to this morning’s release from the U.S. Commerce Department. That was less than the 0.5% rise that economists were expecting, and January's gain is half as much as December's increase. But last month's growth in retail sales is the seventh straight month of higher numbers. The various troubles that hang over the economy are far from trivial, but it's still hard to argue at the moment that the blowback from the Great Recession is pinching consumer spending.
Even after excluding the volatile sales numbers for autos, last month’s rise was still 0.3%. Although some corners in retailing slipped in January, overall there were plenty of gains to go around. Meantime, monitoring retail sales on a rolling 12-month basis drives home the point that consumption is very much alive. Seasonally adjusted retail sales are up by nearly 8% over the past year, as the chart below shows. That’s near the best levels posted in the glory days of 2005 and 2006, when the biggest concern was deciding how long the Great Moderation would last. As it turned out, a kinder, gentler economic cycle didn’t last, but apparently that loss hasn't stopped Joe Sixpack from spending.
Still, January’s rough winter weather may have crimped what would have otherwise been a stronger report. “The weather kept people shoveling snow rather than heading to the mall,” says Russell Price, a senior economist at Ameriprise Financial, via Bloomberg. “The consumer’s role in the recovery will take greater prominence in coming months. We definitely need to see further improvement in the labor market to have continued increases in spending.”
Last month's 0.3% rise, although the seventh straight monthly increase, is the slowest advance for retail sales in the latest string of gains. In addition, some of the increase in January was driven for the wrong reason: rising gasoline prices. Excluding that jump, retail sales would have gained 0.2%, reports NPR.
“Spending growth has clearly lost some momentum,” senior U.S. economist Paul Dales of Capital Economics says. The question is whether the momentum is sustainable at some level above zero? That depends on where you look for clues. As The Wall Street Journal notes:
Retail, in particular, could see a boost after the White House and congressional Republicans in December agreed to a one-year cut in Social Security payroll taxes -- many workers saw the effects in their first paycheck this year.
"Higher net pay is likely to push up the level of consumer spending by half of a percentage point or perhaps slightly more, with more cyclical retail spending boosted by about twice this amount," Goldman Sachs said this week in a research note.
Still, not all signs are positive. Federal Reserve Board governor Sarah Bloom Raskin on Friday said already low home prices could decline further this year, hurting consumer spending and the wider economy.