Retail sales surge in January despite Omicron wave | Business and Economy News

Retail and restaurant sales soared 3.8 percent in January compared to the previous month.

Consumer spending is the engine of economic growth in the United States, and in January, it shifted into high gear, defying concerns that rising prices and Omicron infections would sap consumer mojo.

Retail and restaurant sales soared 3.8 percent in January compared to the previous month, the US Department of Commerce said on Wednesday. That marks the strongest increase since March of last year. It was also stronger than many analysts were expecting given the wave of infections from the Omicron variant of the coronavirus that swept the nation last month, and the rate of consumer inflation hitting a 40-year high.

Compared to a year ago, retail sales rose 0.9 percent in January.

While the headline number suggests a strong rebound, revisions to December’s retail sales numbers – which were adjusted downward – definitely provided an updraft to January.

“The strong 3.8 percent rebound in retail sales in January is not quite as good as it looks, since it is mainly a recovery from the revised 2.5 percent drop in December,” said Michael Pearce, senior US economist at Capital Economics. “The sharp December drop followed by a rebound in January is a repeat of the pattern seen in 2018, 2020 and 2021 – which is now very obviously a seasonal adjustment issue linked to shifts in the timing of holiday spending.”

January’s gains were broad based, but spending at restaurants did fall back slightly.

Wednesday’s report does not cover spending on services, but some economists see it as a signal that consumer spending – which drives roughly two-thirds of US economic growth – should continue to improve in the months ahead. But they also see risks looming on the horizon, especially from rising inflation and the expiration of the federal government’s Child Tax Credit.

“The rapid improvement in the public health situation is setting the stage for robust consumption growth in the months ahead, with the rotation of spending towards services likely to regain some traction,” said Lydia Boussour, lead US economist at Oxford Economics. “Yet, there is a risk that the expiration of the Child Tax Credit and continued steep price increases could temper consumers’ willingness and ability to spend.”