Feb 16, 2022 - Economy

Retail therapy a national pastime

Data: FRED, University of Michigan Index of Consumer Sentiment; Chart: Jacque Schrag/Axios

Retail sales receipts grew even bigger last month amid depressed levels of consumer sentiment. 

Why it matters: The current divergence between spending and mood reflects the major opposing forces in this strengthening economy. It also potentially foreshadows a slowdown in demand.

State of play: Retail sales grew 3.8% in January from December, an initial reading from the Commerce Department said today. (Prices grew 0.6% in January.) 

  • Estimates pegged growth at about 2%. 

Context: Last month's boom comes as inflation has been rising at its fastest pace in 40 years.

  • Meanwhile, U.S. consumer sentiment has fallen to a more than 10-year low as households with $100,000 or more in income expect inflation to grow.

Between the lines: While prices have risen, demand was still the more powerful driver of January's sales increase.

  • According to the Adobe Digital Economy Index, a tracker of online purchases, 78% of online January sales for example, was due to real demand, versus 22% from inflation.

The big picture: As much as the world has reopened, retail spending trends in January very much reflected the kind of demand that the economy has seen throughout the pandemic. 

  • Online shopping, home furniture and goods and the auto sector saw some of the strongest sales growth last month. 
  • The Omicron variant also likely kept people at home, and consequently dollars away from services businesses.

Be smart: This year’s record inflation comes as the result of one of the fastest economic recoveries in history.

Our thought bubble: Seems like retail therapy has become a national past time.

What to watch: When and how big any kind of slowdown may start.

  • Shopify in its earnings report today warned its sales would slow this year.
Go deeper