January retail sales up 3.8% month-over-month (+3.2% adjusted for inflation); topping forecasts.  Retail spending increased 3.8% in January – marking the highest increase since March following a 2.5% decline in December.  Demand for goods remains robust despite elevated inflation levels, while the omicron variant and related surge in Covid-19 cases likely dampened services spending in the month.  Labor market strength is providing tailwinds for consumer spending despite higher inflation.   January data highlighted higher spending on autos, furniture, and building materials as the largest contributors to the month over month  increase.

January retail sales up 13.0% (nominal) and 5.5% (real) year-over-year.  Primary drivers of year-over-year strength include spending on gasoline (+33.4%), restaurant dining (+27.0%) and apparel (+21.9%).  January retail sales built on a year-long trend of exceptional strength.  For perspective, the total value of retail sales in January was $650B – 24% higher than the $526B reported in February 2020 (pre-pandemic) – see chart below.  We expect demand to normalize somewhat in 2022, but would also look for inflation levels to begin moderating as the year progresses.