0.6% Rise in January Retail Sales Fuels Inflation Fears

Consumer spending began the year on a sunny note as retail sales rose 0.6% in January, the government said Tuesday in a report that added to concerns the economy is speeding forward so quickly that it may fuel inflation.

The Commerce Department said sales rose last month to a seasonally adjusted $138.9 billion. That followed a revised 0.1% decrease in December and a 1.3% increase in November.

“Consumers were in a pretty good mood when they started January,” said economist Bruce Steinberg of Merrill Lynch & Co. in New York. “Good weather got them into shopping malls and they were spending money. Despite higher interest rates, they did not feel pinched.”

January’s increase was bolstered by a 1.7% increase in the important general merchandise category, which includes department stores. Sales in that category had inched up 0.1% in December.

Major department store chains reported their January sales had been aided by mild winter weather, which encouraged shoppers and added to sales volume. In addition, lean inventories resulted in higher prices, which boosted overall sales figures.

Some analysts said the latest retail sales report, coupled with other evidence of strong economic growth at the start of the year, could lead the Federal Reserve Board to continue to nudge up interest rates in its ongoing effort to slow the economy and keep inflation in check.

“The economy will continue to exceed the speed limit, on average, in the quarter ahead,” said Robert G. Dederick, an economist for Northern Trust Co. in Chicago. “The Federal Reserve will have to move toward further restraint.”

The unexpectedly strong January sales performance came despite a 0.9% drop in car sales, which followed a 0.4% dip in December. Sales had weakened in early January as manufacturers ended steep year-end discounts.

Excluding autos, which account for about one-fourth of the retail total, sales in January were up 1%, following an unchanged sales pace in December.

“People are making a lot of money and they’re feeling very good and they’re still going out there buying,” said economist Sandra Shaber of the Futures Group in Washington. “I suspect that is going to continue happening until the economy runs out of steam. We can’t count on the consumer to slow the economy down.”

Important Barometer

Steinberg predicted that the pace of retail sales would decrease later this year as consumer spending is restrained by a slowdown in employment gains and by higher interest rates, including rising monthly payments for homeowners with adjustable-rate mortgages.

Retail spending is seen as a key barometer of economic health because it represents about one-third of the gross national product.

Sales of durable goods, “big ticket” items intended to last three or more years, edged up 0.1% in January after an identical rise in December. Non-durable goods surged 0.8% after dropping 0.2% during the previous month.

The only merchandise category besides autos to record a decrease in January was clothing and accessory stores, where sales fell 1.1%.

Drugs stores reported a 2.9% increase in sales after a 2.7% decrease in December. Sales at restaurants and bars were up 1.2% after a 1.1% increase during the previous month.

Furniture and home furnishing sales were up 0.4% in January after a 1.1% drop in December. Sales of hardware and building supplies rose 1.4% after a 2% increase the previous month.

Grocery and other food store sales were up 1% after a 0.9% drop. Gasoline station sales also were up 1% last month after the same increase the previous month.

RETAIL SALES

January 1989: $138.9 billion