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Retail sales point to ‘overall strength’ of U.S. consumers, economist says

PNC Financial Services Group Chief Economist Gus Faucher joins Yahoo Finance Live to discuss the outlook for the U.S. consumer after January's retail sales report exceeded estimates.

Video Transcript

AKIKO FUJITA: But we are beginning this hour with the retail sales data we got out this morning, pointing to resilience among consumers in the face of inflation. Overall sales grew by 3.8% in January. That marked the strongest monthly gain since March of last year. That increase last month also marked a rebound from the previous month when sales fell by 2 and 1/2 percent.

For a breakdown on that data, let's bring in our first guest for the hour. We've got Gus Faucher. He's PNC Financial Services Group Chief Economist. Gus, great to have you on today. What stood out to you in the data we got today?

GUS FAUCHER: Just the overall strength, it was pretty broad across segments. So we saw a large increase in retail sales for non-store retailers like Amazon. There is a good increase in autos. There is a good increase in general merchandise, building materials. So consumers were out there spending in January across a wide variety of categories.

BRIAN CHEUNG: Gus, Brian Cheung here. Now, obviously, this is in a little bit of contrast to the December retail sales report. Give us a little bit of color into whether or not the strong print that we saw in January might have been related to what we saw in December and whether or not that bodes for another positive kind of upside retail sales report in February as well.

GUS FAUCHER: Yeah, we saw a big decline in December. But we saw strong gains in retail sales in October and November. So what's likely going on is is that consumers shifted their holiday spending to earlier in the fourth quarter. And that made December look a little weaker than it might otherwise have been. But then we saw a nice bounce back in January.

I think the underlying trend is, if consumers continue to spend, they say they're worried about inflation. But they have a lot of money saved up. We have job growth. We have wage gains. And I would expect that we'll continue to see strong growth in consumer spending throughout the spring and summer.

AKIKO FUJITA: So is that how you view it, Gus? That, not necessarily that those concerns about price increases haven't necessarily caught up in the data, do you think that consumers kind of continue to spend in this way because of those wage increases and other factors that you pointed to that could still be supportive, even in the face of inflation we're seeing right now?

GUS FAUCHER: That's right. Some of the increase in spending that we've seen is due to higher prices. But a lot more of it is due to higher volumes. But the drivers for consumer spending are still very positive, good job growth, good wage growth, this extra savings that consumers have built up over the last couple of years, hopefully a fading of the pandemic. And so I would expect that we'll continue to see strong growth in consumer spending in the near term.

BRIAN CHEUNG: Gus, what are the categories that you're specifically watching the most closely? Because, you know, when you look at year-over-year growth, it seems like the obvious culprits are behind a lot of these price increases, like, for example, food services and drinking places. I know, retail sales is not a proxy for the inflation report. But these are the same categories we're seeing price increases as well.

So any other categories beyond that that you're watching very closely to see kind of where the trends are going?

GUS FAUCHER: Well, we actually saw restaurant sales decline in January. I think some of that was due to the Omicron variant. So we'll be watching that over the next few months to see whether restaurant sales are going up as consumers feel more comfortable going out. But things like building materials, general merchandise, specialty stores to see where consumers feel more comfortable, are they feeling better about the economic outlook, do they feel comfortable splurging on going out to eat at a restaurant, or fixing up their home, or purchasing specialty equipment that they might not buy otherwise if they're not feeling good about their own prospects.

AKIKO FUJITA: So, ultimately, what does this all mean? As we try to connect all of the data that's out there and we look ahead, you know, to that meeting in March, I mean, how much of the concerns that we're seeing right now on the price increase front is really offset by this confidence we're continuing to see in consumers?

GUS FAUCHER: Well, I think the Fed is going to be looking at these numbers and saying, hey, consumer spending growth is still really strong. And that means that inflation pressures could remain high if consumers are continuing to buy goods. That's where we've seen a lot of the inflation. And so I think that a strong consumer spending report, a strong retail sales report, actually does give the Fed a little more reason to raise rates this year. Because they're concerned about continued overheating in the economy.

AKIKO FUJITA: Gus Faucher, PNC Financial Services Group Chief Economist, great to have you on today.