WASHINGTON — Retail sales in the United States rebounded in January, government data showed Wednesday, logging the biggest gain since early 2021 as policymakers watch for signs that consumer spending is cooling in the longer run.

The US central bank has been working to ease demand as officials try to rein in stubborn inflation, raising interest rates rapidly over the past year.

While there have been signals that the effects of policy are rippling across sectors including consumer spending, the latest data could spark concern.

Retail sales bounced by three percent last month to $697 billion after two months of contraction, said a Commerce Department report Wednesday, markedly higher than analysts expected.

Providing a boost were sales at auto and other vehicle dealers, which jumped 6.4 percent from December to January.

Also robust were sales at department stores, which surged 17.5 percent, while those at restaurants and bars spiked 7.2 percent, the report said.

US Federal Reserve officials are looking for indications that consumers are pulling back as they consider when to halt their campaign of interest rate hikes, but the latest numbers could sharpen their resolve to continue with increases.

The surge in January was the biggest monthly rise since early 2021, according to official data.

Compared with a year ago, retail sales in January were up 6.4 percent.

Wall Street stocks slumped following the strong numbers, on market concerns that the Fed could remain aggressive in its inflation fight.

A separate report released by the Fed on Wednesday showed that industrial production was flat last month, after shrinking in the two months prior.

Manufacturing and mining output picked up in January, but that of utilities plunged on “unseasonably warm weather” that depressed heating demand, said the report.

Unlikely to persist 

Economists suggest that some of the increases seen could be temporary.

Kieran Clancy of Pantheon Macroeconomics said mild weather in recent weeks likely provided a boost to auto dealership visits that helped retail sales and supported industrial output.

In both cases, the trends are unlikely to persist, he added.

“Abstracting from the noise, the bigger picture here is that the trend in manufacturing output has softened significantly since the middle of last year,” he said.

This comes as Fed rate hikes take a toll on capital expenditure of businesses.

Some of the retail rebound also reflects “catch-up demand,” Clancy said, noting that auto production has returned to pre-pandemic levels. But demand for vehicles could weaken on higher financing costs.

Higher borrowing costs and elevated prices are a constraint for consumers, said Rubeela Farooqi, chief US economist at High Frequency Economics.

For now, “a still-strong labor market and gradually easing inflation should be supportive of household spending over coming months,” she added in a note.

Depleting buffers 

Looking ahead, however, cooling wage growth could weigh on people’s willingness to spend.

“Excess savings will provide a fillip to growth, but only in the near term as most households will soon deplete their buffers,” said Oren Klachkin, lead US economist at Oxford Economics.

While households accumulated savings during the pandemic, there have been signs they are drawing down on funds amid high inflation — pointing to more subdued expenditures ahead.

“We continue to expect a recession later this year,” Klachkin said.

Retail spending is a key growth engine of the US economy, and analysts saw the weakness in earlier months as a sign that this was beginning to sputter.

While the Fed has moderated its campaign of rate hikes, central bankers have vowed to stay the course until the job of lowering inflation is done.

“For the Fed, these data are supportive of their view that additional rate hikes are needed to cool the economy and bring the inflation down to two percent,” said Klachkin.