Date: Thursday, February 18, 2021
Source: Wall Street Journal
The U.S. economy’s recovery picked up as consumers used stimulus checks to boost retail spending in January to its largest increase in seven months, a significant jump that comes as manufacturers continued to increase output and employers resumed hiring.
The latest positive signs came on Wednesday when the government said retail sales, a measure of purchases at stores, at restaurants and online, jumped a seasonally adjusted 5.3% in January from a month earlier, and manufacturing output neared pre-pandemic levels.
“Consumer spending is firing on all cylinders,” said James Knightley, an economist at ING Financial Markets LLC. He said that improvement in manufacturing painted a very positive picture for the U.S. economy in the first quarter.
While the pandemic has continued to weigh on the economy and recent winter weather has caused disruptions, signs of growth, fresh government stimulus and eased Covid-19-related business restrictions have prompted some economists to increase gross domestic product estimates for the first quarter of the year.
The Federal Reserve Bank of Atlanta’s GDPNow model on Wednesday predicted the economy will grow at a 9.5% seasonally adjusted annual rate in the first quarter, up sharply from a 4.5% estimate a week ago. Minutes from the Fed’s January policy meeting separately showed that policy makers expected the end-of-year federal stimulus package and progress toward widespread vaccinations would improve the outlook for the economy.
The retail sales increase followed three months of decline during the holiday season, the Commerce Department said on Wednesday. It was the strongest gain since last June, when the economy was in the process of reopening from pandemic-related closures.
Spending rose across the board, according to the report, including in categories hit hard by social distancing and pandemic-related restrictions, such as bars and restaurants.
“It’s hard not to see a message here that the stimulus worked in January to support a turnaround after a decline in early winter,” said Robert Rosener, senior U.S. economist at Morgan Stanley, referring to the $600-a-recipient stimulus checks distributed in early January.
Consumer spending is the main driver of the U.S. economy, accounting for more than two-thirds of economic output.
The Federal Reserve separately on Wednesday said that industrial production, a measure of factory, mining and utility output, increased a seasonally adjusted 0.9% in January compared with December. That marked the fourth consecutive month of gains with manufacturing output rising 1% in January to just below its pre-pandemic level in January a year ago.
The labor market is also showing signs of healing. The Labor Department last week reported that worker filings for unemployment benefits—while still high—decreased to 793,000 in the week ended Feb. 6, well below an early January peak that exceeded 900,000, as hiring has resumed and job openings increased.
The strongest month-over-month retail sales gains came in categories related to home improvement and work-from-home, such as furniture and electronics. Consumers “continue to spend on things that improve their life at home,” said Sarah Wyeth, a retail analyst at S&P Global Ratings.
Jewelry and home-decor retailer Gearys Beverly Hills has benefited from the trend, according to Chief Executive Thomas Blumenthal, with relatively strong sales of products such as crystal, silverware and bar items despite occupancy limits at his five stores around Los Angeles.
“People are really nesting,” he said. When California reopened outdoor dining in late January, “it just was a boom of excitement, people are out and restaurants are full,” which drove traffic to stores, Mr. Blumenthal said. He added that he was hopeful the vaccine would open places up even more.
The latest stimulus checks were part of the $900 billion aid package former President Donald Trump signed into law Dec. 27, which expanded the amount and duration of unemployment benefits available to millions of laid-off workers. Employers also resumed hiring in January, during which the unemployment rate declined to 6.3% from 6.7%. Lawmakers are currently debating a further coronavirus-relief program that would potentially include $1,400-a-person payments to most households.
Allen Merry said he used his recent stimulus check to buy a used acoustic guitar from a local musical instrument shop.
The 55-year-old librarian from Philadelphia has played the guitar in his free time for years, but has had more time to dabble in recent months thanks to remote work cutting down his commute.
His first stimulus check last year went straight into his savings account, Mr. Merry said. A frequent concertgoer in normal times, he hasn’t spent much over the past year due to all the time at home, so he is grateful to be able to spend his second stimulus payment on something fun, he said. “Most people have to use it to just keep themselves going, so I definitely feel fortunate.”
Problems with the vaccine distribution process, along with the arrival of new coronavirus variants, have dashed some business leaders’ hopes for getting back to normal quickly. Coca-Cola Co. said last week that the pandemic has been worse this winter than the beverage giant expected, and the first half of the year would be challenging.
Still, Hasbro Inc. and Mattel Inc. said last week they enjoyed a boost during the Covid-19 pandemic as lockdowns spurred parents to spend on toys such as board games and Barbie dolls.