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January retail sales jumped 5.1% on a month-to-month basis after declining 0.3% in December, per the latest data from the US Census Bureau.
January’s monthly retail sales growth represents the biggest gains since June, when coronavirus pandemic restrictions began to ease after initial stay-at-home orders and consumers began spending more. On a year-over-year (YoY) basis, retail sales climbed 10.8% in January after ticking up 6.3% YoY in December, reflecting the sector’s ongoing recovery from the hit it took earlier in 2020 at the onset of the pandemic.
Stimulus payments and unemployment improvement provided a major boost for January retail sales. The second stimulus package, introduced at the end of December, included $600 payments, which helped uplift consumer spending, especially among lower-income households: Spending among consumers making less than $60,000 a year rose 20% YoY in the week ending January 10, according to data from Opportunity Insights cited by The Wall Street Journal.
Further, an estimated 88% of consumers who received a coronavirus stimulus payment spent it immediately, Jonathan Silver, chief executive of Affinity Solutions, told The Journal—likely reflecting the pent-up demand for funds during the pandemic. Another factor that helped boost January retail spending was the improved unemployment rate, which declined to 6.3% from 6.7%—meaning more consumers were able to return to work and increase spending.
Treasury Secretary Janet Yellen, a strong stimulus check advocate, reiterated the importance of a large stimulus package, which could further aid retailers and the payments providers that support them.
Merchants would likely see further recovery with an even larger package. The $600 stimulus payments made a big impact on January retail sales, so introducing a $1,400 payout would likely lead to increased retail spending. Further, 25.9% of funds from the first stimulus payment went toward purchases, indicating that consumers may once again up their spending with a third round of payments. The proposed boost in stimulus payment amount could help retailers offset earlier pandemic declines.
Payments providers would also benefit from increased stimulus check funds and overall retail spending. Card networks and issuers are counting on another round of stimulus spending to lift volume, especially for credit cards, which have been heavily affected by consumers leaning into debit card spending during the pandemic. Spending recovery for issuers like Bank of America, Citi, and JPMorgan Chase has slowed—highlighting the need for a cash injection to stimulate card spending among consumers. Stimulus payments could also support spending recovery for card networks, which are still feeling the impact of the pandemic: For example, Mastercard reported 1% YoY growth in gross dollar volume in Q4—matching the prior quarter and further showcasing the need for stimulus payments to boost consumer spending.
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Source:: Business Insider