U.S. Domestic Consumption Picks Up

Spending increased as a result of the robust labor market, dissipating pandemic fears, and increased Social Security payouts, and there may be further increases in the future.

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In the U.S., retail sales boomed last month. They most likely underestimate the power of the American customer.

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Retail sales increased by 3% over the previous month, seasonally adjusted, according to data released by the Trade Algo. This follows a 1.1% decline in December. 1.9% was the slimmer gain that economists had predicted. All of the retail categories included in the survey saw growth, indicating overall strength.

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The strength in sales is presumably caused by a number of causes. The economy added 517,000 seasonally adjusted jobs last month, according to the Labor Department, and the unemployment rate dropped to its lowest point in more than 50 years. As a result, more people are now receiving paychecks. Despite all of the recent stories about layoffs, individuals aren't particularly concerned about losing their jobs, according to the Federal Reserve Bank of New York's monthly consumer survey, which continues to demonstrate that people continue to assign a low probability to the possibility of doing so.

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Another factor: Social Security benefits were 8.7% larger last month as a result of the Social Security Administration's greatest cost-of-living adjustment in forty years, which was prompted by last year's spike in inflation. That indicates that roughly 70 million people experienced an increase in income overnight.

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The epidemic comes next. The U.S. wasn't hit by a significant Covid-19 wave in January like it was last year. On the contrary, fewer cases were reported in January than in December. People proceeded to resume activities like going shopping in person, going to work, and traveling as a result. Retail sales growth is not benchmarked to the pandemic in January of last year, but the decline in cases and change in mood could have undoubtedly had a psychological impact on purchases. In the report released on Wednesday, sales of food services and drinking establishments increased the most from December, increasing by 7.2%. This is significant because it is the only category in the study that includes services, and because Americans spend more money on services than they do on things. If restaurants were busier, perhaps hotels, dentists, and nail salons would also be.

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All of these factors—the health of the employment market, the rise in benefits, and the abating of pandemic fears—indicate that spending may be solid in the months to come. The Federal Reserve is raising interest rates, and the more it does so, the more likely it is that spending will drop and the likelihood that the United States will enter a recession will increase. However, if a slump is on the horizon for 2023, it doesn't appear to have started yet.