Sales Grew 3% Versus 1.9% Expected

Retail sales increased more than expected in January, despite rising inflation. According to the Commerce Department, sales for the month rose by 3%, exceeding the expected rise of 1.9%. Excluding auto sales, retail sales increased by 2.3%. Sales in food and drink services saw a significant increase of 7.2%, while sales in motor vehicle and home furnishing stores increased by 5.9% and 4.4%, respectively. Despite a 2.4% increase in gas prices, receipts at service stations remained flat. Online retailers saw a rise of 1.3%, while electronics and appliance stores increased by 3.5%.

  • On a year-over-year basis, retail sales increased by 6.4%, which was in line with the consumer price index move reported on Tuesday
  • Industrial production was flat in January, compared to the estimated gain of 0.4%. While manufacturing input rose 1% and mining production increased 2%, utilities declined 9.9%, likely due to an unseasonably warm beginning to the year

Other economic news on Wednesday showed that jobs, industrial production, and retail sales were generally better than expected, indicating a pick-up in economic activity in early 2023 after a soft patch in late 2022. The recent activity reports will support the Fed's plans for additional interest rate increases in the first half of this year, according to Bill Adams, chief economist for Comerica Bank.

The Fed Is On Watch

On Tuesday, a group of high-level officials from the Federal Reserve gathered to discuss the state of the economy. While they agreed that some progress had been made, they also acknowledged that there was still much work to be done.

  • One of the officials, John Williams, the President of the New York Fed, stated that the gears of monetary policy would continue to shift until inflation was brought down to a healthy 2%
  • After that, they would take a break to assess the impact of their actions on inflation, the labor market, and the economy as a whole

While there were signs that the rate increases were having some impact, inflation remained a persistent issue that could be further aggravated by the reopening of the Chinese economy.


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