RF Regions Financial Corporation

By Harriet Torry 

U.S. consumers boosted their spending during the year's first month, and finished 2015 on a stronger note than first thought, the latest sign of low unemployment and cheap gasoline outweighing concerns about market turmoil.

Sales at retail stores and restaurants rose 0.2% in January from the prior month, the Commerce Department said Friday. December's retail sales were revised higher, to 0.2% growth from an initially reported 0.1% drop.

With December's revision, January marked the fourth consecutive month of higher retail sales and showed how American households remain relatively strong despite headwinds from global stock-market volatility in the early weeks of 2016.

"Despite the ongoing turmoil in global financial markets, consumer spending still managed to get off to a firm start" to the first quarter, said Richard Moody, chief economist at Regions Financial Corp.

Spending by consumers drives two-thirds of U.S. economic output, and household outlays have helped the economy grow in recent quarters despite a strong dollar and weak overseas growth, which have burdened U.S. exporters.

Consumers continued to spend less at gas stations thanks to lower fuel prices. But a core measure of retail sales excluding autos and gasoline posted a 0.4% increase. Americans stepped up spending across several major categories, including vehicles, groceries and building materials. Compared with a year earlier, sales grew 3.4%.

The impact of a major snowstorm in the Northeast in January was less than feared, economists said. Sales at bars and restaurants posted their biggest decline in two years in January, falling 0.5% during the month. But sales at food and beverage stores rose 0.5%. A measure of spending that includes online shopping grew 1.6%, the most in nearly a year.

Wages rose and unemployment fell in the first month of the year, the Labor Department said last week, providing a strong foundation for spending growth.

While consumers appeared undeterred by the volatility in January, a sentiment reading out Friday indicated shoppers may be growing more nervous this month. The University of Michigan's preliminary February sentiment index dropped to 90.7 from 92.0 in January, which the surveyors attributed to a less favorable outlook for the economy this year.

That could point to caution in the months ahead, economists warned. Given financial-market uncertainty, growth in consumer outlays will remain contingent on the job market remaining strong and wages growing further.

"Looking at recent growth in overall consumer income there does appear to be some buildup in spending potential--assuming recent capital market volatility doesn't scare consumers into saving a little more," said Steve Blitz, chief economist at ITG Investment Research.

Companies have also warned about the impact of market jitters on shoppers recently. Beverage giants Coca-Cola Co. and PepsiCo Inc. both reported higher profit and raised prices in the fourth quarter, but warned of challenges ahead due to the uncertain global economy.

Pepsi Chief Executive Indra Nooyi cautioned the U.S. recovery was "delicate" during an earnings call, and said she has "never seen this combination of sustained headwinds across most economies, combined with high volatility across global financial markets" during her years in business.

Other indicators point to hurdles for the U.S. economy that could crimp consumer outlays. Factory activity shrank in January for the fourth straight month, and prices for imported goods fell 1.1%--signs that a slumping global economy, strong dollar and plunging oil prices are weighing on U.S. inflation.

Nonetheless, Friday's reading on retail sales suggests consumers headed into 2016 on a relatively strong footing, welcome news for a Federal Reserve looking for evidence the U.S. economy is holding steady amid global uncertainty.

In a speech Friday, Federal Reserve Bank of New York President William Dudley described households as "in good shape." He said the key sector "looks much better positioned today than in 2008 to absorb shocks and continue to contribute to the economic expansion."

The Federal Reserve closely watches consumer spending data as a gauge of economic growth. Fed officials pointed to solid consumer spending as a factor in their decision to raise interest rates in December for the first time in nearly a decade.

Write to Harriet Torry at harriet.torry@wsj.com

(END) Dow Jones Newswires

February 12, 2016 13:57 ET (18:57 GMT)

Regions Financial (NYSE:RF)
Historical Stock Chart
From Mar 2024 to Apr 2024

Regions Financial (NYSE:RF)
Historical Stock Chart
From Apr 2023 to Apr 2024