Now we have retail sales also surging in January, on the heels of a terrific unemployment report and Atlanta Fed’s GDPNow estimate of higher first quarter economic growth.
Retail sales that make up half of consumer spending rose more than 3 percent in January, almost double early estimates. Consumers are going out more than ever with most of the US freezing, ignoring predictions of an oncoming recession, or calls by the Federal Reserve for businesses to cut back on hiring.
It’s as if the public is listening to a different song, a more optimistic tune that trumpets the U.S. economy and their finances are just fine.
Sales rose in every major category, led by department stores. Receipts leapt almost 18 percent, the biggest jump since the reopening of the U.S. economy in May 2020 after the early onslaught of the coronavirus.
One closely watched category is bars and restaurants, the only service sector in the retail report. Restaurant sales soared 7.2 percent last month after falling slightly in the last two months of 2022.
Sales of new vehicles and parts, a volatile category, jumped 5.9 percent last month. That’s the biggest increase in 22 months, and signals Americans want to travel more than ever.
Since retail sales aren’t adjusted for inflation, it also means consumers have enough cash and savings to keep up with inflation, while it is declining.
Retail CPI inflation is 6.3 percent higher YoY in January, down from its 9 percent high in June 2022. And it has risen just 2 percent since last June. The cost of gasoline rose 2.4 percent in January and gave a boost to the headline CPI reading.
Prices have subsided in February, however, as more refineries that were shut down for maintenance are coming back on line.
Grocery prices have risen 11.3 percent in the past year, but have come off their peak. They rose 0.4 percent in the first month of the new year. That was the smallest increase in 17 months, however, and a good sign for the prospects of slowing, even while inflation is falling.
And that is the real conundrum puzzling economists. What is the real cause of inflation? How can it be falling while consumers buy more than ever? The increased demand isn’t pushing up prices, in other words.
Instead, it looks like supplies are catching up in a big way. Asian economies like China are pumping out more products than ever, revitalizing the supply chains that were cut short by the pandemic.
So instead of focusing on suppressing the demand for goods and services by attacking employers and workers’ rising wages with higher interest rates, why not listen to the music in consumers’ ears heralding a rising abundance and better New Year?
Harlan Green © 2023
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
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