Consumers increased spending in January in a sign that they are confident about the economy. The rise in retail sales reflects this winter’s employment growth and President Trump’s promises to cut taxes.
Retail sales increased by 0.4 percent in January, beating experts’ expectations. January’s retail sales report is led by spending gains on hobbies, electronics and restaurants, after December’s slowdown in spending on entertainment.
The strong data on retail sales was released the same day that consumer prices, which made their biggest gain in four years. Employment figures don’t give consumers a reason to worry. With 246,000 jobs added in January, consumers seem to be not in a rush to save. The uptick in demand lifted retail sales by 5.6 percent compared to January 2016.
Retail sales did better than predicted by experts from NOMURA, the Japanese financial service company. Sales exceeded their forecast by 0.1 percent. January’s retail sales report is led by spending gains of 1.8 percent on hobbies, 1.6 percent on electronics and 1.4 percent on restaurants, after December’s slowdown in spending on entertainment.
While consumer confidence is spiking and Americans appear to feel good about the overall economy, their optimism is not supported by a rise in incomes and can last only so long, says Lindsey M. Piegza, chief economist at Stifel, brokerage and investment banking firm.
“I think this confidence can carry retail sales for one, maybe three more months, ”said Piegza.
Trump’s promise to cut taxes supports consumers’ confidence.
“I think consumers are very excited that taxes might be reduced, that corporate tax rates might be reduced,” sais Piegza.
Piegza said that cutting taxes might be a challenge for Trump’s administration.
“We haven’t seen any of it going on, and I think it will be a difficult trial for Trump’s administration to push this agenda,” she said.
Large sales of discretionary goods could be a sign of consumers’ confidence in Trump’s economy, but some experts attribute January gains in sales to nothing, but a weak spending in prior holiday months.
Sales of electronics, clothing and merchandise are just bouncing back from weak sales in previous months, says Louis Crandall, chief economist at Wrightson ICAP LLC, a research firm.
“Those categories were weak in November and December,” said Crandall.
“Large sales in January are just rebounds from weak performance during the holiday season in all of these categories.”
After increases in sales for seven consecutive years, auto sales showed a noticeable slowdown this month, with sales falling by 1.4 percent in January.
“There is a lot of discounting in automobiles,” said Peter Morici, a professor of business at the University of Maryland.
Morici predicted car sales would drop by 0.2 percent this month, but he attributed this plunge to the decrease in car value.
“If you have lower prices but sell the same amount of goods,” he said, “your sales go down.”
Relatively warm January was unlikely to blame for more spending on gas. A large increase in gasoline prices drove sales at service stations up 2.3 percent in January.
Average hourly wages didn’t meet expectations and gained only 0.1 percent in January. Despite a sluggish increase in earnings consumers drove non-auto retail sales up 0.8 percent.
“The consumer isn’t necessarily seeing more cash, but the feeling is there,” said Piegza.
