skip navigation

Blog

Stay up to date on timely topics and market events. Subscribe to our Blog now.

ECONOMY
February 17, 2021

Retail Sales Show Explosive Growth in January

By Michael J. Bazdarich, PhD

Stay up to date on timely topics and market events. Subscribe to our Blog now.

So much for fears that the US consumer is foundering. Retail sales rocketed higher in January, with headline sales up 5.3% from December, and so-called control sales measures up 6.0% to 6.2%. Similarly sharp January gains were registered by every major component of retail sales. This writer cannot remember any monthly release that showed such uniformity of monthly changes.

As for the aforementioned fears, just a month ago various analysts were fretting that consumer spending was slowing down, presumably due to the waning of federal aid. In contrast, our reading was that sales were merely going back to sustainable levels, as shoppers were “double-dipping” in summer and fall, satisfying current needs and also buying merchandise not purchased during the spring shutdown.

Today’s news kills the fears. However, it doesn’t directly vindicate our story, as our explanation wouldn’t have predicted the extremely strong gains announced today. Instead, the best explanation we can offer for the extremely strong January gains—and much of the November/December declines—is that seasonal shopping patterns have been disrupted by the pandemic.

Government data are seasonally adjusted to reflect “normal” past experience. The dominant seasonal event for retailers is the Christmas shopping season, and the Census Bureau’s retail sales data are adjusted to smooth out the effects of extremely large sales gains over October-December followed by extremely large sales declines in January.

The declines in adjusted sales reported for October-December actually reflected (hid?) sharp sales gains before seasonal adjustment. Similarly, the 5% to 6% sales gains reported today for January reflect (hide?) 17% declines before seasonal adjustment. Yes, an unadjusted January decline in sales of only 17% is an extremely strong result relative to past history. Again, our contention is the pandemic altered shopping patterns, understating the strength of spending last fall, and overstating the strength in January.

Hopefully, Exhibit 1 allows you to see through all this noise. It shows both monthly movements in control sales as well as a moving 12-month average of sales. The monthly data show all the short-term ups and downs from the shutdown(s), reopening(s), then the Covid Christmas.

Exhibit 1: Retail Sales Trends
Explore Retail Sales Trends.
Source: US Census Bureau. As of 31 Jan 21. "Control" retail sales is total sales less vehicle dealers, service stations, building materials stores, and restaurants sales. Select the image to expand the view.

Notice that beneath all these swings, the 12-month average of sales has been above its pre-Covid trend even since last September. In other words, shoppers bought enough merchandise over the summer to MORE than make up for all the shopping not done during the shutdown. And even with the reported declines in sales in 4Q20, the 12-month average has continued to move further above those pre-Covid trends over recent months.

Again, there never was really any consumer weakening late last year, and the January news obliterates those fears. In fact, the data through January completely kill any case for further government stimulus … or at least they would if policy were driven by real-world facts.

© Western Asset Management Company, LLC 2021. This publication is the property of Western Asset and is intended for the sole use of its clients, consultants, and other intended recipients. It should not be forwarded to any other person. Contents herein should be treated as confidential and proprietary information. This material may not be reproduced or used in any form or medium without express written permission.
Past results are not indicative of future investment results. This publication is for informational purposes only and reflects the current opinions of Western Asset. Information contained herein is believed to be accurate, but cannot be guaranteed. Opinions represented are not intended as an offer or solicitation with respect to the purchase or sale of any security and are subject to change without notice. Statements in this material should not be considered investment advice. Employees and/or clients of Western Asset may have a position in the securities mentioned. This publication has been prepared without taking into account your objectives, financial situation or needs. Before acting on this information, you should consider its appropriateness having regard to your objectives, financial situation or needs. It is your responsibility to be aware of and observe the applicable laws and regulations of your country of residence.
Western Asset Management Company Distribuidora de Títulos e Valores Mobiliários Limitada is authorised and regulated by Comissão de Valores Mobiliários and Banco Central do Brasil. Western Asset Management Company Pty Ltd ABN 41 117 767 923 is the holder of the Australian Financial Services Licence 303160. Western Asset Management Company Pte. Ltd. Co. Reg. No. 200007692R is a holder of a Capital Markets Services Licence for fund management and regulated by the Monetary Authority of Singapore. Western Asset Management Company Ltd is a registered Financial Instruments Business Operator and regulated by the Financial Services Agency of Japan. Western Asset Management Company Limited is authorised and regulated by the Financial Conduct Authority (“FCA”) (FRN 145930). This communication is intended for distribution to Professional Clients only if deemed to be a financial promotion in the UK as defined by the FCA. This communication may also be intended for certain EEA countries where Western Asset has been granted permission to do so. For the current list of the approved EEA countries please contact Western Asset at +44 (0)20 7422 3000.