Retail sales rose 3 percent in January, according to Commerce Department data released Wednesday, defying expectations. Spending on automobiles, dining out and department store products rose sharply.
It’s the largest monthly increase in nearly two years. It’s also a reversal from December and November, when consumer spending contracted.
Consumer spending outpaced inflation, which rose 0.5 percent over the same period.
That’s good news for the U.S. economy. If Americans continue to spend, there’s little risk of a recession in the near term.
On the other hand, companies won’t bring down prices if consumers are willing to pay elevated sums for goods and services. Inflation barely fell from December to January after easing significantly in previous months.
Fed officials signaled this week they’re willing to get more aggressive with interest rate hikes aimed at slowing the economy.
But, some economists think the January numbers are a blip rather than a trend. They note that it’s difficult to adjust for seasonal fluctuations because this January was abnormally warm, and they point to a rapid decline in Americans’ savings in recent months.
“Wednesday’s sales data reaffirmed our base forecast for a mild recession in the second half of this year; it should take the same amount of time for consumers to dry up their excess savings just as overall spending drops off,” RSM economist Tuan Nguyen said in a note.
