Retail sales to show consumer appetite for spending amid high inflation

Economists polled by The Wall Street Journal expect the Commerce Department to report Wednesday that retail sales grew by a seasonally adjusted 2.1% in January, sharper than December’s 1.9% month-over-month decline. Is.

Economists said most of the forecast would be due to vehicle sales. Excluding auto, forecasters predicted a modest 0.8% increase in retail sales last month. Auto prices have skyrocketed in recent months because of low inventories of new and used vehicles, high demand and supply disruptions, including computer-chip shortages.

Consumer inflation rose last month at its fastest pace in nearly 40 years, reducing consumers’ spending power as wages rose more slowly than the price of most goods and services.

Gregory Dako, chief economist at consulting firm EY-Parthenon, said, “2022 is going to present a very delicate rebalancing act for the entire economy and especially for American consumers living in this world, where prices are high and purchasing power is high. more constrained.” ,

Despite relatively strong domestic finances and a strong labor market, retail spending has slowed in recent months as consumers face rising inflation and supply-chain disruptions due to the COVID-19 pandemic. Unlike other economic-data reports produced by the US government, retail sales are not adjusted for inflation. This means that higher retail sales figures may reflect higher prices rather than higher purchases.

Economists said the supply crunch is expected to ease in this quarter. The increase in inventory contributed to a large portion of US gross-domestic-product growth in the fourth quarter, suggesting that supply-chain issues were starting to improve.

However, inflation is showing some signs of moderation. Suppliers sharply increased prices last month, the Labor Department said on Tuesday, a sign on already high consumer inflation as upward pressure continued to build into the beginning of the year.

The Commerce Department’s retail sales report does not include expenses on services other than restaurants. Services suffered the brunt of a reduction in spending due to the Omicron version in early January, only part of which is reflected in the retail-sales report.

Economists expect a decline in purchases of goods such as electronics and furniture and a spurt in services spending as the latest pandemic wavers. This in turn could ease some of the pressure on goods inflation, with more people returning to eat, travel and have fun.

There are early signs of this change in spending patterns. Spending increased 12% year-over-year for the week ended Feb. 5, according to Bank of America credit- and debit-card data. The bank found that spending on airfares, accommodation, entertainment and food all improved to levels that were seen just before the start of the pandemic.

Still, high inflation in recent weeks has weighed on consumer sentiment. The University of Michigan’s preliminary index of consumer sentiment hit its lowest level in a decade in February as homes worried about rising prices and eroding financial prospects.

The Conference Board’s consumer-confidence index also declined in January on weak short-term growth prospects, although the proportion of consumers planning to buy homes, vehicles and major appliances increased over the next six months.

Many consumers are finding that their dollar is not going the way it was before the pandemic.

Jennifer Morrison, a risk-management executive in Columbus, Ohio, said she recently paid about 20% more for a property she rented through Airbnb Inc. than a sofa she bought two years ago. “We settled to get it here fast, it’s not exactly what we wanted,” she said, adding that she found little in stock at her local IKEA and had to wait a long time for furniture from other retailers.

Ms Morrison, who plans to retire later this year, said because of gasoline prices, she is making fewer trips to visit her family. She’s also eating less outside and turning to the less expensive cuts of meat at the grocery store.

“Since the pandemic, we used to have dinner three nights a week. Now it probably only happens once a week,” said the 60-year-old.