By Harriet Torry, Mike Cherney and Min Zeng
U.S. consumers showed signs of strength in January, taking
advantage of low oil prices to increase their spending and offering
a welcome counterpoint to the gloom that has gripped investors and
roiled markets since the start of the year.
Sales at retail stores and restaurants rose 0.2% in January from
the prior month, the Commerce Department said Friday. And
December's retail sales were revised to a 0.2% gain instead of a
drop, showing a better end to the year than initially
estimated.
The increase offers hope that the U.S. economy, which rests
heavily on consumer outlays, can buck a slowdown in the global
economy and power through a downturn in manufacturing. Investors
cheered, sending the Dow Jones Industrial Average up 313.66 points,
or 2%, to 15973.84 in the largest gain this month; it remains down
8.3% for the year.
The retail-sales gains bolster a case that many analysts and
economists have been making in recent weeks: While many
financial-market gauges are raising concern about the health of the
economy, ranging from the decline this year of broad stock indexes
to the rise in corporate borrowing costs, direct measures of
economic health such as home sales, employment and wages have been
sending largely upbeat signals, suggesting that a U.S. expansion
wrapping up its seventh year may not be as vulnerable as some
fear.
Markets are forecasting a U.S. recession, "but I don't see
that," said David Coard, head of fixed-income trading in New York
at Williams Capital Group, a brokerage for institutional investors.
"U.S. labor markets are still in good shape and we just started to
see some wage pressure."
The retail news helped fuel a broad rally in financial markets
Friday. U.S. crude oil rose 12.3% to $29.44 a barrel, its biggest
one-day percentage gain since 2009. Prices are still down more than
20% this year.
Bank stocks, hit hard this year by declining global-growth
expectations and fears that the negative-interest-rate policy
adopted Jan. 29 in Japan points to a future of constrained profits,
surged Friday. J.P. Morgan Chase & Co. rose 8.3%, Bank of
America Corp. rallied 7.1% and Morgan Stanley added 6.5%. The KBW
Nasdaq Bank Index of large U.S. commercial lenders rose 5.4% Friday
but is down 19% for 2016.
For now, investors have been struggling to divine the
relationship between falling oil prices and the broader market.
Once thought an unalloyed good for the U.S. economy, the roughly
70% plunge in crude prices since 2014 has instead roiled markets by
upending a major source of U.S. investment spending and
employment.
As well, consumers and businesses appear to be displaying
considerable caution with energy savings, moving carefully on
outlays and saving wherever possible.
Indeed, the improvement in retail sales, while solid, remains
far from spectacular after a plunge in gasoline prices that many
economists expected would result in a surge in consumer
spending.
Investors since have been scrounging for signs that low pump
prices are spurring U.S. consumers to spend more at restaurants,
retailers and elsewhere. Vasant Prabhu, the chief financial officer
at payments firm Visa Inc., said Tuesday that evidence of increased
spending has been "spotty," but he still gave some cause for
optimism.
"Consumers are now beginning to believe that these gas prices
could stay low for longer, which would suggest that they may feel
better about spending some of those savings," he said at the
Goldman Sachs Technology and Internet Conference.
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%.
With December's revision to retail sales, January marked the
fourth consecutive month of gains and showed how American
households remain relatively strong. "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.
The impact of a major snowstorm in the Northeast in January was
less than feared, economists said. 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.
Companies have also warned about the impact of market jitters on
shoppers recently. A number of companies that reported quarterly
earnings this past week referred to the turbulent macroeconomic
backdrop, but they said it has yet to have a pronounced impact on
their bottom line.
At Interpublic Group of Cos., Chief Executive Michael Roth said
advertisers haven't yet made significant changes to their ad
spending despite the precarious environment.
"The uncertainty we're all experiencing leads us to approach the
new year with a degree of caution," Mr. Roth said on the company's
earnings call Friday.
Expedia Inc. Chief Executive Dara Khosrowshahi said during an
earnings call this past week that some corporate clients are trying
to save money by downgrading "from premium class to economy class
or taking a train instead of taking a plane."
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
households look "much better positioned today than in 2008 to
absorb shocks and continue to contribute to the economic
expansion."
Write to Harriet Torry at harriet.torry@wsj.com
(END) Dow Jones Newswires
February 12, 2016 19:05 ET (00:05 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.