Additional Fiscal Stimulus Boosts US Retail Sales By Reuters

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© Reuters. A man stands in front of a Modell store that is closed as retail sales suffer a record drop during the outbreak of the coronavirus disease (COVID19) in New York

By Lucia Mutikani WASHINGTON (Reuters) – US retail sales rebounded sharply in January after households received additional money from the government to help the pandemic, suggesting a rebound in economic activity after being held back. by a new wave of COVID-19 infections late last year. The increase in sales reported by the Commerce Department on Wednesday was widespread and ended with three consecutive months of declines. Other data showed that inflationary pressures are building at the factory door, and producer prices posted their biggest gain since 2009 in January. Retail sales rose 5.3% seasonally adjusted last month, the Commerce Department said Wednesday. December data was revised down to show that sales were down 1.0% instead of 0.7% as previously reported. Economists polled by Reuters had forecast that retail sales would rise 1.1% in January. Retail sales increased 7.4% over the previous year. Last month’s sales were led by motor vehicles, with revenue at auto dealerships accelerating 3.1% after rising 2.0% in December. Sales in clothing stores soared 5.0%. Consumers also increased spending on restaurants and bars, increasing revenues by 6.9%. Still, restaurant and bar sales were down 16.6% compared to January 2020. Revenues in electronics and appliance stores increased 14.7% and sales in furniture stores increased 12.0 %. There were also strong increases in sales of sporting goods, hobbies, musical instruments, and bookstores. Revenues in food and beverage stores increased solidly, as did those of building materials stores. Online retail sales increased 11.0% after falling 7.3% in December. Excluding automobiles, gasoline, building materials and food services, retail sales increased 6.0% last month after declining a revised 2.4% in December. These so-called core retail sales correspond more closely to the consumer spending component of gross domestic product. They were previously estimated to have fallen 1.9% in December. The government approved another coronavirus rescue package worth nearly $ 900 billion in late December, which included checks for $ 600 for mostly low-income and some middle-income Americans. Most of the money was disbursed in early January, which supported discretionary spending last month. The package also extended a weekly government-funded unemployment benefit, as well as benefits for millions of people who do not qualify for state unemployment programs, as well as those who have exhausted their six months of eligibility. US stocks opened lower. The dollar rose against a basket of currencies. The prices of US Treasuries were higher. REAFFIRMATION OF INFLATION Part of the strong rebound was technical. The model used by the government to eliminate seasonal fluctuations in data tends to anticipate a further drop in retail sales after the January holidays. The drop in unadjusted sales was less than in previous years, contributing to the large increase in seasonally adjusted retail sales. More gains on sales are expected in the coming months. The United States Congress is considering President Joe Biden‘s $ 1.9 billion recovery plan, which will include an additional $ 1,400 check for households. The massive fiscal stimulus is expected to boost consumer spending this quarter and fuel faster economic growth. Rates of COVID-19 infection and hospitalizations in the United States are also declining, and vaccine distribution has improved. That should allow more restaurants and other consumer-oriented businesses to reopen in the spring. Employed Americans have increased savings, which stood at $ 2.38 trillion in December. That could unleash pent-up demand for services like air travel and hotel accommodations, which have been hit the hardest by the pandemic. The economy is forecast to grow as much as 4.8% this year after contracting 3.5% in 2020, the biggest drop in gross domestic product since 1946. The reassertion of economic activity is beginning to drive inflation. In a separate report Wednesday, the Labor Department said its producer price index for final demand rose 1.3% last month, the biggest gain since December 2009, when the government renewed the series. That followed a 0.3% increase in December. In the 12 months through January, the PPI accelerated 1.7% after rising 0.8% in December. A 1.3% increase in the price of services represented two-thirds of the increase in the PPI. That was the biggest gain since December 2009 and followed a 0.1% drop in December. The cost of goods rose 1.4% after having gained 1.0% in December. Economists polled by Reuters had forecast that the PPI would rise 0.4% in January and gain 0.9% year-on-year. Inflation is in focus this year amid concerns from some quarters that Biden’s recovery plan could lead to the economy overheating. Higher inflation is forecast for the spring as price declines at the beginning of the coronavirus crisis are erased from the calculations, but there is no consensus among economists on whether it would hold beyond the so-called base effects. Federal Reserve Chairman Jerome Powell said last week that he expected the rise in price pressures to be transitory, citing three decades of lower and stable inflation.