Retail Sales Show Strength in January

The one major outlier was big-box discounters.

Kenneth Kim

Kenneth Kim

Senior Economist, KPMG US

+1 212-954-6144

Retail sales rose 3.0% in January, well above expectations for a 2% increase. The recovery in January spending followed a disappointing holiday season when retail sales fell 1.1% each in November and December. 

Sales of motor vehicles and parts jumped 5.9% in January, accounting for one third of the gain. All-cash sales have picked up as well as stronger fleet sales contributing to the strength in vehicle demand.

Department store sales surged 17.5%, the largest increase on record outside the early days of reopening during the pandemic.  That was likely due to a combination of a surge in incomes via both strong employment and the largest boost to Social Security payments in decades.  The boost to Social Security alone added about $8.9 billion to incomes during the month. 

Sales at restaurants and bars jumped 7.2% in January, overcoming two months of flat sales.  Not only did diners take advantage of restaurant week, which started in mid-January in several major cities; the Social Security payments probably added to higher receipts at food services and drinking places.  Transfer payments do have an impact on spending; the last occasions restaurant sales were so much higher were January and March 2021, when households received stimulus checks as part of COVID relief.

Separately, travel and tourism remained extremely strong in January.  The ranks of those out on vacation actually exceeded the already elevated levels of December. Even discretionary spending areas that have been showing weakness in recent months, such as furniture, electronics and apparel store sales rose 4.4%, 3.5% and 2.5%, respectively.

The one major outlier was big-box discounters, which suffered a very large drop in spending.  That is where complaints about an inventory overhang have been largest and the burn for households from inflation the greatest.

Gasoline station sales were flat, which given the rise in prices, implies a decline.  That is likely due to flooding and widespread weather disruptions in California. 


Bottom Line:

Retail sales sizzled in January, boosted by strong employment and a surge in Social Security payments.  Financial markets continue to discount the possibility of the view that the Federal Reserve is not done raising rates, further pushing up Treasury market yields and sending equity markets lower.  This is clearly the case in which good economic news is bad financial news. 

Sales of motor vehicles and parts jumped 5.9% in January, accounting for one third of the gain.