Consumers, lured to the malls by unusually warm weather and eager to spend their Christmas gift cards, boosted retail sales by a much larger than expected amount in January with sales outside of autos surging at the fastest pace in six years.
The Commerce Department said Tuesday that retail sales excluding autos were up 2.2 percent in January, the best showing in this category since late 1999. With autos included, retail sales rose by 2.3 percent, the best showing in 20 months. Overall retail sales had risen by a tiny 0.4 percent in December.
The overall increase was more than double what economists had been forecasting. They attributed the strong showing in part to the mildest January in more than a century. This prompted consumers to troop to the stores to redeem the gift cards they had received in December.
“Warm weather and consumers’ willingness to spend every penny they have led to a huge increase in retail sales,” said Joel Naroff, head of Naroff Economic Advisors. “Households may be tapped out and dipping into savings and wealth, but that still hasn’t slowed them down one bit.”
In a second report Tuesday, the Commerce Department said inventories held by businesses on shelves and backlots rose by 0.7 percent in December, up slightly from a 0.6 percent November increase. The increase in inventories was led by a 1 percent rise in inventories held by wholesalers. Retail inventories were up 0.7 percent and inventories held by manufacturers rose 0.5 percent.
Economists are looking for a pickup in inventory rebuilding to provide support to overall economic growth in coming months. They also said the surprisingly large jump in retail sales in January should translate into a strong rebound in economic growth in the current January-March quarter.
The overall economy, as measured by the gross domestic product, slowed to weak growth of just 1.1 percent in the final three months of last year. After viewing the retail sales report, some analysts said growth in the current quarter could come in at an annual rate of 5 percent or even higher.
Stephen Stanley, chief economist at RBS Greenwich Capital, cautioned that the reported surge in retail sales could be overstating strength. He said the government’s seasonal adjustment process may not have caught up with the big increase in January sales caused by consumers redeeming gift cards they received in December. The cards are not counted as sales until they are redeemed.
“Still, the magnitude of the rise should pour a lot of cold water on the idea that the consumer is on the verge of collapsing,” Stanley said.
The 2.3 percent rise in total retail sales was the largest one-month gain since a similar increase in May 2004. The 2.2 percent increase in sales outside of autos was the biggest increase since a 2.5 percent surge in December 1999, a period when the U.S. economy was in the midst of the longest expansion in history.
The strength last month was led by a 2.9 percent jump in sales at auto dealers, the best showing since a 5.5 percent increase last November. Sales were also strong at department stores, furniture stores and clothing stores.
Economists believe that economic growth, after slowing to a modest pace of 1.1 percent in the final three months of 2005, is rebounding sharply in the current quarter. Some economists are forecasting that economic output in the January-March period could surge at an annual rate as high as 5 percent.
The Federal Reserve under new chairman Ben Bernanke is closely the economy to make sure that surging growth does not spur unwanted inflation. Bernanke will deliver a new economic forecast to Congress on Wednesday and many analysts believe he will signal that the central bank, which has already raised interest rates 14 times, is prepared to nudge rates even higher to fight inflation.
Many economists believe the Fed will boost a key interest rate by another quarter-point at its March 27-28 meeting.
The retail sales report showed that sales at furniture stores climbed by 3.7 percent in January while sales at hardware stores were up 3.4 percent and appliance stores show a 2 percent rise.
Sales of clothing got a boost from the warm weather as shoppers snapped up spring outfits. Sales at clothing stores rose by 4.2 percent, the best gain since October 2002, while sales at department stores and other general merchandise store rose by 2.1 percent, the best showing since May 2004.
Sales at service stations were up 5.5 percent but analysts said much of that gain reflected higher pump prices. Sales at restaurants and bars rose by 3.2 percent, the best showing in five years.