US retail sales jump 5.3% in January

Retail sales increased sharply last month, the Commerce Department said Wednesday, beating economists’ expectations and marking their first increase since September.

Sales grew 5.3% in January from the prior month on a seasonally adjusted basis. That’s the largest monthly increase since June, when the sector was rebounding from the spring’s pandemic lockdown.

America’s economy runs on consumer spending, so the health of the retail sector is a crucial indicator for the economy as a whole. And retail sales had declined every month in the fourth quarter of 2020, which makes the better-than-expected January report even more welcome news.

The stark increase in January, which pushed sales to a fresh all-time high, “more than fully reverses the three-month drop through December,” said Mike Englund, chief economist at Action Economics.

December’s data was also revised lower, to a 1% decline from an initial 0.7% drop.

Celebrating the New Year with retail therapy

Consumers clearly started the year ready to spend.

Sales at electronics and appliance stores increased 14.7% in January from the prior month, 12% at furniture and home furnishing stores, and 8% at sporting goods and hobby stores.

Online sales grew another 11% in January. They have soared throughout the pandemic as people stay home.

“Retail sales surged in January thanks to additional government stimulus,” Ted Rossman, credit card analyst at Bankrate.com, said in a note to clients Wednesday.

Washington’s second stimulus package — worth $900 billion — extended various benefit programs, including direct payments of up to $600 per adult and enhanced jobless benefits of $300 per week.

“Spending growth should remain strong in the near term as coronavirus cases have declined recently, vaccine distribution is picking up, and households still have stimulus funds to spend,” Gus Faucher, chief economist at PNC, said in an email to clients.

Economists expect President Joe Biden’s proposed $1.9 trillion stimulus plan, which includes additional direct checks for certain Americans, to help give spending a boost.

“Consumers are learning to adapt and are spending in spite of the virus, not because it has gone away,” Rossman said.

The pandemic has weighed on many retailers, but after some recovery in the summer Americans spent less at stores in the final stretch of 2020. Renewed coronavirus infections and tighter restrictions in the United States, as well as expiring unemployment benefits under the first stimulus package, took a toll on the sector.

Top retailers in the coming weeks will also report holiday sales and possibly give forecasts for how they expect the year to go. Walmart the largest US retailer, reports earnings Thursday.

“It’s an uncertain time in retail. Walmart and other retailers did quite well in 2020. How they navigate the other side of this as we get back to normal and reopened and consumers go travel and go out to eat will be important,” said Michael Lasser, analyst at UBS.