An hour before the commencement of trading today, the Commerce Department released its latest report on retail sales for the month of January. That report, which was expected to be closely watched as a gauge to how the all-important consumer sector is faring, was mixed. Specifically, the Commerce Department reported that retail sales rose 0.4% last month, to $401.4 billion, but at the same time said that retail sales data for the months of November and December were revised lower.
Although the 0.4% month-to-month advance was below the consensus expectation of 0.7% increase, the positive showing (up 5.8% year over year) was yet another indication that the U.S. economy is continuing to strengthen, even if the growth is not as formidable as it should be at this stage of the economic up cycle. This report, along with favorable data recently on manufacturing activity
and job creation, are more signs that the U.S. economy will avoid another downturn. Our stance is that the likelihood of another recession on these shores is less than 25%, but with the current problems in the euro zone, such an event can’t be completely ruled out at this moment. Still, it was encouraging to see that core retail sales, which exclude automobile, gasoline, and building materials sales, jumped 0.7%. The healthy advance in that metric during the month following the busy holiday shopping season is further evidence that the consumer sector, which accounts for nearly 70% of the nation’s economic output, is not growing timid.
Nevertheless, there were still some disappointing aspects to the January report. The aforementioned downward revisions to retail sales for the month of December and November suggest that consumers did not open their wallets as much as previously expected during the holiday shopping season. Too, spending on gasoline rose 1.4% last month—the biggest increase since March of last year. If gasoline prices were to continue to rise, there is the fear that this could weigh on the consumer and force many families to reconsider how much of their disposable income will be spent on long trips during the summer, the peak vacation months, and an important period for the consumer sector.
All in all, the latest retail sales data was another decent report on the state of the U.S. economy. Looking forward, the continued well being of the U.S. consumer will be vital for the domestic economy, as the aforementioned problems in the euro zone and, recent data suggesting that China’s economic growth is moderating, may result in lower overseas demand for American goods in the coming months.