Consumer spending expected to see boost in January, helped by stimulus checks

A woman carries Nike shopping bags at the Citadel Outlet mall, as the global outbreak of the coronavirus disease (COVID-19) continues, in Commerce, California, December 3, 2020.

Lucy Nicholson | Reuters

Aided by government stimulus checks, consumers are expected to have boosted their spending in January, and the trend is likely to continue to gain momentum as more of the economy reopens.

Economists expect retail sales rose by 1.2% after a surprise 0.7% decline in December, according to Dow Jones. The January retail sales report is to be released at 8:30 a.m. ET Wednesday, and it is also expected to show sales rose 1% when excluding vehicles.

“I think the main narrative is that things turned around,” said Stephen Stanley, chief economist at Amherst Pierpont. “November and December were quite negative. As the virus was gaining momentum, people were hunkering down. In January, you had an unwind of that to a little extent.”

Stanley said spending was also likely boosted by $600 stimulus checks sent to individuals in early January, as part of the last Covid relief bill, passed by Congress in late December. He expects sales increased by 0.8%, but that gains could be even bigger over the next few months.

“The $900 billion in fiscal relief has gotten into the economy and it shows,” said Mark Zandi, chief economist at Moody’s Analytics. “It’s really strong across the board. It had been mostly retailing related to work from home. Electronic and appliance stores and online would be good examples of that. But in January, it was all of the above. The reopening retailers as well showed strength. Clothing stores and restaurants saw a bounce.”

Zandi said he expects total retail sales rose by 2.1%, based on business-to-business data provided by software firm Cortera, which tracks transactions for small and mid-sized businesses.

“The Cortera numbers are unambiguously strong. I think we’re off and running, unless the pandemic goes in a bad direction,” he said. “The economy is going to be booming.”

 According to Cortera, spending by retailers on nonpayroll expenses rose by 16.7%. Cortera said the level is an increase of 5% above December levels, suggesting retail sales will also increase.

Economists also saw other signs that spending picked up.

“The credit card and debit card data suggest retail sales were fairly strong,” said Diane Swonk, chief economist at Grant Thornton. “We also got some easing up of mitigation measures which also should help as well, and these all came before we had the devastating cold which did slow things down.”

Swonk said the stimulus checks were important. “I really do think we were heading toward a double dip. We had a pretty dramatic slowdown as we went into the end of the year,” she said.

The Biden administration has proposed another $1,400 stimulus check which is making its way through Congress. That should also boost consumers’ ability to spend.

“People are getting vaccinated. That’s going to be another burst of activity,” said Stanley, the Amherst Pierpoint economist. “I would think we’re going to see improvement basically from now until as long as the middle of the year. I think it’s really going to start to open up in March.”

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