Economists Are Expecting To See Monthly Growth In January's Retail Sales: What Does This Mean For Fed Policy?

The U.S. Census Bureau is slated Wednesday to issue its report on U.S. retail sales for the month of January.

Retail sales for December dropped 1.1% since the previous month to $677.1 billion in what became a palpable sign that Fed tightening was weighing on consumers and companies.

January's report is expected across the board to showcase growth for the first time in three months.

Bloomberg estimated January's headline figure is anticipated to come at a 1.9% increase from last month, Yahoo Finance reported.

A surge in auto sales is reportedly one of the major factors driving a monthly rise in retail sales of about 2%, as several investment banks and analysis firms — including Wells Fargo & Co WFC and Citigroup Inc C — predicted, as per FX Street.

Vehicle sales are coming in at their highest levels since May 2021.

On Tuesday, the U.S. Department of Labor released the latest consumer price index (CPI) report, printing its fourth monthly decline for inflation, which stood at 6.4% higher in January on a year-over-year basis.

While progress to slow down inflation has been steady, Fed officials worry the rate of deflation is slower than needed to reach the target of 2% in its desired time frame and further hikes on interest rates are expected.

Specifically, the job market continues to perform at a stronger-than-expected rhythm, with the latest jobs report tripling economist expectations for January.

"The strength in the labor market remains a critical support for consumer purchasing power," said Michelle Meyer, North America chief economist for the Mastercard Economics Institute.

Last week, Mastercard Inc MA released data for in-store and online retail sales across all forms of payment for January. Excluding the automotive sector, the credit card giant anticipated January sales were up +8.8% year-over-year in January.

December's official year-over-year increase was 6%.

Benzinga's Take: If a monthly growth in retail sales is realized, it would be the first since October 2022 and sends mixed signals to Fed officials trying to come up with measures to achieve a soft-landing scenario for inflation.

Fed officials are expecting signs of a slowing economy in order to prove that the tightening policy is working. Strong consumption will likely be taken as a sign that interest rates still need to go up another notch.

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