- The January increase was stronger than the 0.1% gain expected going into the report and followed an upwardly revised 1.0% increase in December (originally reported as up 0.6%).
- Eliminating a number of volatile components such motor vehicles and gasoline stations, so-called control retail sales were up an expected 0.4% though this followed an upwardly revised 0.4% gain in December (0.2% previously).
The overall monthly increase was stronger than expected with a greater lift emanating from a number of components. The report was expected to be restrained by indications of falling unit auto sales though the 1.4% drop in sales at motor vehicle dealerships was slightly less than the 2% we had expected going into the report. The level of January auto sales still remains at near cyclical peaks. Higher gasoline prices were expected to send nominal gasoline station receipts up 2.0% in the month though today’s report showed a slightly greater 2.3% rise. Overall retail sales was also helped by a strong 1.4% jump in sales at food services and drinking places. This increase more than offset the 1.1% decline recorded in December.
Excluding these three volatile components, along with a 0.3% rise in sales at building material stores, so-called control sales rose a solid, though expected, 0.4% in the month. The January gain matched an upwardly revised 0.4% increase in December that was previously estimated as up 0.2%. January saw impressive gains in clothing (1.0%) and furniture stores (0.8%) sales. A main offset was flat activity at ‘non-store retailers,’ which includes mainly internet retailers, though this followed a solid 1.9% jump in the final month of the Christmas holiday shopping period.
Our Take:
The strong overall increase was helped by rising gasoline prices that implied a more modest gain on a volumes basis. However, indications this built further onto even great strength in December implies still solid momentum in consumer spending benefitting from solid job gains and low financing costs. This is expected to be reflected in a 2.4% Q1 real consumer spending gain that would in line with the 2.5% increase recorded in Q4. This strength will keep overall GDP growth rising at an above-potential pace. This pace of growth over the second half of last year returned the central bank to tightening mode in December. Expectations of solid growth continuing are projected to result in the Fed continuing to tighten gradually through 2017. Our forecast assumes that the current fed funds range of 0.50% to 0.75% will finish 2017 at 1.00% to 1.25%.
