NEW YORK CITY, New York: After two consecutive monthly declines as more Americans purchased motor vehicles and other goods, US retail sales posted the highest gains in nearly two years in January.
The data showed that the US economy has continued to maintain its resilience, despite higher borrowing costs.
This sign of strength in consumer spending could fuel financial market speculation and encourage the Federal Reserve to continue raising interest rates through summer to curb domestic demand.
It has also led economists to raise their first quarter economic growth forecasts and eased their concerns of an imminent recession.
However, fears that the US central bank could lift borrowing costs higher than currently thought are keeping expectations of a downturn in the second half on the table.
“Every day the economy does not lose steam, the risks go up astronomically that the Fed will lose patience and make those recession forecasts a reality by jacking up rates too high,” said Christopher Rupkey, chief economist at FWDBONDS in New York, according to Reuters.
After falling by an unrevised 1.1 percent in December, retail sales rose 3.0 percent last month, the largest increase since March 2021, the Commerce Department said.
Lou Crandall, chief economist at Wrightson ICAP, noted, “The bottom line is that the underlying trend in consumption is not as weak as the December numbers indicated, but is also not as strong as the January numbers might suggest,” as reported by Reuters.
After analyzing credit and debit card data last week, the Bank of America Institute reported a surge in spending in January, stating “that while lower-income consumers are pressured, they still have solid cash buffers and borrowing capacity, and even for the lowest- income cohorts this should provide support for some time yet.”
Citi card data also showed gains in services spending.
Meanwhile, the government said that consumer prices accelerated in January, while the disinflation rate slowed year-on-year.
Conrad DeQuadros, senior economic advisor at Brean Capital in New York, told Reuters, “The resiliency of the consumer will likely add to the Fed’s desire to keep rates higher for longer to help rebalance demand and supply in the economy.”