Retail Sales Boom In January: Here's The Word On The Street, What It Means For The Federal Reserve

Retail sales in the U.S. increased more than economists anticipated last month, suggesting economic activity picked up to start the year following a slowdown around the holiday season.

The stronger-than-expected jump is helping to shake off recession fears but might give the Federal Reserve more firepower in its fight against inflation. 

What To Know: The Census Bureau said U.S. retail and food services sales were up 3% in January versus estimates for a 1.8% increase. The number came in the wake of two straight months of declines. 

Excluding gasoline and autos, core retail sales were up 2.3% last month after falling 1.1% in December. The number came in well above expectations for a 0.8% increase. 

Related Link: US Retail Sales Jump 3% In January As Inflation Continues To Fall: What Investors Need To Know

Experts React To The Print: Bill Adams, chief economist for Comerica Bank, noted the report created more evidence the economy is in better condition to start the year than most expected.

"Household surveys show consumers are getting a little more concerned about recession risks, but they are still spending — and with consumer spending accounting for about 70% of GDP, it is hard for the economy to enter recession as long as consumer spending is growing," Adams said.

Edward Moya, senior market analyst at OANDA, believed Wednesday's retail sales number supported the idea the Fed could remain "very aggressive" in its fight against inflation.

"​The U.S. economy is looking like it will have a solid first quarter and recession doubts are getting some vindication here," Moya said.

The retail sales number for January further bolstered the case that ongoing rate increases would be necessary to bring inflation back down to the Fed's 2% goal. 

Moya noted treasury yields are signaling the Fed would likely have to continue to raise rates into restrictive territory, and as economist Mohamed El-Erian pointed out earlier this week, the 2-Year Treasury yield was the best gauge of what's to come.

Related Link: Is This Economist Back From The Future? Top Market Pundit Reveals How To Predict Where The Stock Market Will Go Before It Happens

Genevieve Roch-Decter, CFA, and CEO of Grit Capital, took to Twitter to highlight the numbers beneath the surface. Although retail sales for January marked the largest jump since March 2021, with all 13 categories seeing increases, the inflation-adjusted numbers tell a different story, she said.

"What’s really happening is Americans are having to take on more credit card debt to afford the same things because of INFLATION," Roch-Decter said via tweet.

Adjusting retail sales for inflation shows that Americans' real spending has been essentially flat for 10 straight months, she said, citing ZeroHedge.

Roch-Decter expected the Fed to continue raising rates for longer than anticipated, similar to what Adams and Moya conveyed. 

SPY Price Action: The market doesn't know what to make of the print. The SPDR S&P 500 SPY initially traded lower, then reversed, and is trading slightly down again.

The SPY was down 0.40% at $410.98 at the time of publication Wednesday, according to Benzinga Pro.

Photo: PublicDomainPictures from Pixabay.