Retail sales rebound in January, bolstered by robust auto sales

Retail sales rebound in January, bolstered by robust auto sales

*Retail sales jumped 3.8% m/m, following a downwardly revised 2.5% m/m decrease in December, suggesting the economy largely weathered the impacts of the omicron variant and adverse winter weather in January with only a modest impact on real economic activity (Chart 1). Retail sales growth in January was underpinned by rising sales across eight of thirteen major retail sales categories, with marked increases at motor vehicle and parts dealers (+$7.1b) and nonstore retailers (+11.9b), which together accounted for almost four-fifths of January’s rise in retail sales.

*While January’s outsized retail sales growth is certainly a positive, it offsets December’s sharp monthly decline and lifts the level of retail sales 1.1% above its November level. However, this is in nominal terms; in real terms, retail sales increased 3.1% m/m, not enough to offset their December decline, leaving real retail sales slightly below their November level (Chart 2). Further base effects due to the uptick in retail sales, which increased 8% in Q1 2021 following the issuance of Economic Impact Payments in January and March, are likely to push yr/yr measures of retail sales down in the near term.

*Sales at motor vehicle and parts dealers surged 5.7% m/m in January on the heels of a downwardly revised 1.6% m/m decline in December (Chart 3). Motor vehicle supply remains limited, and shortages are likely to persist. Various auto manufacturers paused production at plants in recent weeks due to disrupted supply chains, and the ongoing semiconductor shortage continues to crimp auto production. Lack of supply and depleted inventories at the retail level are likely to continue to weigh on motor vehicle and parts dealers’ sales.

*Retail sales ex. motor vehicle and parts dealers increased a robust 4% m/m, pointing to the broad-based strength of January’s retail sales. Sales increased 4.1% m/m at building materials, garden equipment, & supply dealers, pointing to continued demand for home improvement projects. Although sales at furniture and electronics & appliance stores increased 5.2% m/m, this follows declines of 4.2% in November and 6.2% in December, leaving sales well below their October levels.

*Gasoline station sales fell 1.3% m/m, likely reflecting winter storms that forced large swathes of the country to hunker down indoors for large portions of the month. Nationally, the average price of gasoline per gallon was on average the same in December and January and has increased markedly since, leaving gasoline station retail sales poised to rise sharply in February. In addition to adverse weather conditions, COVID-19 cases, which peaked in mid-January and accentuated public health concerns, had a clear impact on in-person economic activity. Sales at food services and drinking places declined 0.9% m/m in January, and although sales in this category softened through the end of Q4, sales are likely to accelerate as spring/summer approaches and the impact of the omicron wave of infections recedes (Chart 4).

*Control group retail sales (excluding food services, autos, building supplies and gasoline stations), which are included directly in GDP calculations, increased 4.7% m/m following a 4% decline in December and are 0.6% higher than in November (Chart 5). Payroll employment growth, which surprised to the upside in January paired with elevated nominal wage growth, and pent-up demand should continue to support consumption growth through 2022. However, despite our expectation that consumption will grow solidly in 2022, downside risks are emerging – in particular, the slump in the University of Michigan Consumer Sentiment Index to 61.7, an eleven-year low, and the potential demand dampening impact of sustained elevated inflation, which is likely to peak late in Q1.

Chart 1. Retail Sales & Food Services (SA, Bil. $)

Chart 2. Real Retail Sales & Food Services

Chart 3. Retail Sales: Motor Vehicle & Parts Dealers

Chart 4. Retail Sales Food Services & Drinking Places vs. Gasoline Stations

Chart 5. Control Group Retail Sales

Mickey Levy, mickey.levy@berenberg-us.com

Mahmoud Abu Ghzalah, mahmoud.abughzalah@berenberg-us.com

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