skip navigation
Blog

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

ECONOMY
February 16, 2022

January Retail Sales Fail to Fully Reverse December’s Declines

By Michael J. Bazdarich, PhD

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

Headline retail sales rose 3.8% in January, with a -0.1% revision to the December sales estimate. The “control” sales measure excludes sales at car dealers, building material stores, gas stations and restaurants, as those sectors are frequented by businesses as much as consumers. That measure saw a 4.8% January rise, with the December sales estimate revised by -0.5%.

When are 3.8% and 4.8% increases NOT a sign of strength? When they were preceded by December declines as sharp as were reported a month ago. Net of revisions, headline sales are now estimated to have declined 2.5% in December, prior to the January 3.8% rebound. Control sales are now reported to have declined 4.0% in December before the 4.8% January rise.

And then there are price effects. Whereas the Census Bureau produces these retail sales estimates, the Bureau of Economic Analysis releases retail price deflators through December, and we can augment those with January Consumer Price Index data from the Bureau of Labor Statistics to produce estimates of real retail sales. Real control sales are shown in the chart (green line), along with the nominal levels for that aggregate (blue line).

Exhibit 1: Retail Sales Trends
Retail Sales Trends
Source: Census Bureau, Bureau of Economic Analysis, Bureau of Labor Statistics, Western Asset. As of 31 Jan 22. Select the image to expand the view.

As you can see in the chart, the January control sales gains were not nearly enough to fully offset the December declines when price effects are allowed for. The same goes for headline sales. Adjusting for likely price changes, real control sales declined by 5.1% in December, followed by only a partial, 3.7% rebound in January. Real headline sales declined 3.1% in December, followed by a 3.1% partial rebound. (By the arithmetic of compounding, a 3.1% rise does NOT fully offset a 3.1% decline.)

In commenting on the December sales data last month, we stated that the December sales declines likely reflected omicron-induced softness but that it was also the case that sales had been flatlining for the previous eight months. This is obviously still the case. Even with the January bounce, real sales levels remained below the flat levels of April-November, suggesting further softness due to omicron effects.

These declines will likely be reversed in coming months, as Covid cases continue to wane, and shoppers buy in March and April merchandise they were not able to purchase over December-February. However, once said “consumer restocking” is complete, real retail sales trends are likely to remain on the zero-growth trend seen since March 2021.

Early media and Wall Street reports we have seen described today’s January sales gains as a “surge.” In view of the December declines and allowing for price effects, that description is grossly inaccurate. Sales remained depressed through January thanks to lingering omicron effects, and those declines were on top of trends that had been soggy for many months prior to omicron.

© Western Asset Management Company, LLC 2022. 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 authorized and regulated by Comissão de Valores Mobiliários and Brazilian Central Bank. 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.