U.S. Economy Surges Into 2021 as Sales, Output Top Forecasts
Pedestrians cross a street in front of a Macy's Inc. department store at the Easton Town Center Mall in Columbus, Ohio, U.S. (Photographer: Luke Sharrett/Bloomberg)

U.S. Economy Surges Into 2021 as Sales, Output Top Forecasts

The U.S. economy started 2021 with a bang as retail sales and factory output accelerated and expectations continue to build for another jolt of government stimulus, setting the stage for what could be the best year of economic growth in nearly four decades.

Retail sales rose in January by the most in seven months, increasing 5.3% after a disappointing December and beating all forecasts, Commerce Department figures showed. Meanwhile, factory output rose by more than expected last month and a measure of producer prices advanced by the most in records back to 2009.

After a surge in Covid-19 infections curbed spending as 2020 drew to a close, cases have ebbed and states have started to ease some restrictions on businesses and activity. The ability to shop and dine out, paired with the latest round of $600 stimulus payments, helped spark retail sales gains across all major categories last month.

U.S. Economy Surges Into 2021 as Sales, Output Top Forecasts

The report shows that when fiscal aid “arrives to household balance sheets, it does get turned around fairly quickly and materializes in economic activity,” Michael Gapen, chief U.S. economist at Barclays Plc, said on Bloomberg TV.

With another stimulus package likely in March, “we should see a pretty rapid acceleration in demand and household spending as we move into the second quarter, which could be continued if vaccinations continue apace, and mobility gradually recovers over time,” Gapen said.

Expectations for gross domestic product growth increased for the first quarter and every subsequent three-month period through mid-2022, according to the most-recent monthly survey of economists by Bloomberg News. Economic growth this year is estimated to be the strongest since 1984, when Republican Ronald Reagan was president.

Still, services spending remains depressed, and it’s not clear how long it will be until widespread vaccinations allow for a broad-based resumption in activity. Unemployment remains high and millions of Americans are struggling to pay their bills, underscoring the more durable challenges the economy faces in the months ahead.

The latest data could further embolden Republican opposition to President Joe Biden’s $1.9 trillion stimulus plan, which many in the GOP say is too big. Even so, Democrats are on track to narrowly pass the package without Republican votes, and the data could also be held up as evidence of how critical relief payments are to the economy and jobs.

The so-called “control group” subset of sales, a core measure of retail activity that excludes food services, car dealers, building-materials stores and gasoline stations, jumped 6%, the largest gain since June.

What Bloomberg Economics Says...

“The strength and composition of retail sales (specifically the tilt toward discretionary categories) is an encouraging signal that consumers’ aggressive saving patterns from 2020 are starting to ease — a development which, if sustained, could unleash a torrent of pent-up demand in 2021.”

--Carl Riccadonna and Yelena Shulyatyeva, economists

For the full note, click here

U.S. Treasury yields briefly touched a one-year high and the S&P 500 dropped for a second day. In addition to highlighting firmer demand, the Wednesday data also illustrated undertones of inflation.

Gas station receipts rose 4%, which partly reflected higher fuel prices. The retail figures aren’t adjusted for price changes. At the end of January, the average nationwide price for a gallon of gasoline was $2.42 -- roughly in line with pre-pandemic prices.

Other data from the Labor Department showed producer prices increased 1.3% in January, the biggest gain in records dating back to 2009, driven by broad-based gains in categories including energy and food.

The core measure, which excludes energy and food, jumped by 1.2% -- also the most in records -- over the prior month. Rising producer prices have the potential of boosting the cost of living for households. A report last week showed the core consumer price index -- a key measure of prices paid by U.S. consumers -- was unchanged in January for a second straight month, pointing to the pandemic’s lingering restraint on inflation.

A separate report from the Federal Reserve on Wednesday showed manufacturing extended its recovery in early 2021. Output rose in January by more than forecast, though it remained 1.9% below the pre-pandemic level.

Also Wednesday, figures from the National Association of Home Builders showed confidence among residential construction firms improved slightly in February as the allure of low interest rates generated more prospective buyer traffic. Still, rising construction costs threaten to slow demand.

Seasonal adjustment factors also played a role in the stronger-than-expected retail figures.

“We did not see the typical upswell in retail sales during the holiday season, which meant hefty seasonally adjusted declines,” Stephen Stanley, chief economist at Amherst Pierpont Securities, wrote in a note. “Retail sales on a not seasonally adjusted basis were down by more than 17% in January, but that was a much more moderate drop than what we typically see in the month, so the seasonal adjusted figure was up sharply.”

©2021 Bloomberg L.P.

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