Americans boost their spending

WASHINGTON — America’s consumers rebounded last month from a weak holiday shopping season by boosting their spending at stores and restaurants at the fastest pace in nearly two years, underscoring the economy’s resilience in the face of higher prices and multiple interest rate hikes by the Federal Reserve.

The government said Wednesday that retail sales jumped 3 percent in January, after having sunk the previous two months. It was the largest one-month increase since March 2021, when a round of stimulus checks gave a big boost to spending. Excluding the pandemic era, January’s rise was the largest in more than two decades.

Driving the gain was a jump in auto sales, along with healthy spending at restaurants, electronics stores and furniture outlets. Some of the supply shortages that had slowed auto production have eased, and more cars are gradually moving onto dealer lots. The enlarged inventories have enabled dealers to meet more of the nation’s pentup demand for vehicles.

Wednesday’s robust retail sales figures, along with a strong January job report, suggest the economy remains durable, perhaps even strengthening, and at little risk of succumbing to a recession anytime soon. Earlier this week, economists at Goldman Sachs reduced the likelihood of a recession this year from 35 percent to 25 percent.

Brisk consumer spending, though, can also intensify upward pressure on inflation. The latest measure of consumer inflation showed that it slowed slightly on a year-over-year basis in January but rose sharply from December to January.

The combination of solid spending and hiring will also likely raise pressure on the Federal Reserve to raise its benchmark interest rate even further.

The Fed has already signaled it expects to carry out two more quarter-point hikes, to a range of 5 percent to 5.25 percent, which would be the highest level in 15 years. On Tuesday, Deutsche Bank said it expected the Fed to add two additional hikes on top of that this year, to a range of 5.5 percent to 5.75 percent.

Some of last month’s retail sales gain probably reflected unusually warm weather, which might have encouraged more people to buy cars, go shopping and eat out. The government’s seasonal adjustment process also likely helped boost January’s figure. Its seasonal adjustments aim to modify sales data for typical calendar patterns. An example is a spike in spending during the holiday shopping season and a drop in January.

“While the report suggests consumers got their mojo back, seasonal adjustment noise and the milder winter weather in January explain part of the strength,” said Gregory Daco, chief economist at EY Parthenon. “The stronger-than-expected report puts consumption on a better footing at the start of 2023 and points to positive though sluggish consumer spending growth” in the current January-march quarter.

The retail sales figures showed spending at restaurants soared 7.2 percent in January and more than 25 percent compared with a year earlier. The report isn’t adjusted for inflation, so some of that increase reflects higher prices. According to the government’s inflation report, restaurant prices increased 8 percent in the past year.

Whether America’s shoppers can continue to spend briskly will help determine how the economy fares. The eight interest rate hikes the Fed has carried out in the past year have raised the costs of mortgages and auto loans as well as credit card interest rates. Inflation has also eroded workers’ paychecks, thereby limiting their ability to spend freely.