Flaming Hot Retail Sales May Rekindle Overheat Worries

Retail sales in the US were sharply higher in January, closely-watched data out Wednesday showed.

The headline print, a 5.3% gain, was well ahead of even the most optimistic guess from more than five-dozen economists. The range was 0% to 4.1%. January’s headline counts among the five largest monthly gains in history. Two of the other top five came last year as the economy emerged from the initial lockdowns.

This comes as a relief. Retail sales disappointed in December and a downward revision to November’s already poor print was insult to injury last month. No one wanted a repeat of that, and a sequel wasn’t in the cards. December’s 0.7% drop was revised lower, but that seems likely to be overshadowed by January’s apparent blockbuster.

The ex-autos print was 5.9%, a remarkable beat to consensus. The control group rose 6%.

All categories posted gains. Notably, electronics & appliance stores saw sales jump 14.7%. Furniture and home furnishings rose 12%. Apparently, consumers still needed a few items for their home offices. This seems to suggest that the effects of the pandemic work-from-home trend and the concurrent housing mania are still manifesting in consumption.

Previously, there was some concern that the boost from those dynamics had run its course.

Sales at gas stations rose 4%, presumably on price effects. People bought clothes (up 5%), they dined out (food services and drinking places rose nearly 7%), and they bought football helmets and flutes, too (sporting goods, hobby, musical instrument, & book stores up 8%). Department store sales rose 23.5%.

At the risk of overstating the case, this looks like a barnburner. And it should bolster the reflationary vibes.

Throw in a PPI beat, and you’ve got yourself a pretty solid set of data if you’re in the inflation camp.

The retail sales data for January will allay worries about the resiliency of the US consumer. On the other hand, it could raise (more) concerns about the prospect that additional large stimulus could overheat the economy.

If this is what happens when incremental stimulus is injected into an economy that’s still partially hamstrung by COVID containment protocols and remains 10 million jobs short of pre-pandemic levels, then it’s not difficult to posit that more stimulus hitting just as the re-opening push gets underway in earnest and virus caseloads plunge, could lead to some pretty hot reads on activity.

As discussed here at length a few days back (and on countless occasions previous), the self-referential nature of the US economy (which depends heavily on services sector employees consuming services when they’re not providing them), means a prolonged period of curtailed activity in leisure and hospitality is a decidedly unpalatable proposition.

The longer employment takes to rebound in services, the more difficult it will be for consumption to stage a sustainable recovery. Without such a recovery, the US economy cannot truly stabilize. It lives and dies by consumption and services.

Consumption is a semblance of resilient after all, or else responds perhaps more quickly than we thought to an abatement of virus cases, especially when direct monetary relief to households is in play.

In any event, if this isn’t some kind of anomaly and Congress injects another $1.9 trillion via demand-side stimulus, we could be in for quite the show. Assuming, of course, vaccine rollout proceeds and new variants don’t spoil the party.