Retail sales in the US increased by 0.7% in September, beating the expectations of economists and showing the resilience of consumers amid rising prices and interest rates. However, the growth in retail sales does not necessarily reflect an increase in the quantity of goods sold, but rather the higher prices that consumers have to pay.
The impact of inflation on retail sales
The retail sales report from the Census Bureau measures the dollar value of the goods sold by retailers, but it does not adjust for inflation. This means that if the prices of goods increase, the retail sales will also increase, even if the quantity of goods sold remains the same or decreases.
According to Skanda Amarnath, executive director of Employ America, this can be misleading, especially for categories that are sensitive to price changes, such as gasoline and groceries. He said that gasoline spending tends to go up with gas prices, but that does not mean that there is a strong consumer demand. He also said that grocery spending rose by 0.4% in September, but it is unclear whether that was because people bought more groceries or because groceries were more expensive.
To adjust for inflation, Amarnath does his own calculations by comparing the growth in retail sales in a category with the growth in prices in similar categories in the consumer and producer price indexes. However, he admitted that there is not a perfect alignment between these measures, and that the prices of individual items can vary significantly.
The drivers of retail sales growth
Despite the inflationary pressures, retail sales in September showed a solid performance, driven by several categories. The biggest contributor was auto sales, which rose by 3.6%, reflecting the strong demand for vehicles despite the supply chain disruptions and chip shortages that have limited the availability of new cars.
Other categories that saw an increase in retail sales were online shopping (up 1.1%), restaurants (up 0.9%), general merchandise stores (up 0.4%), and clothing stores (up 0.3%). These categories suggest that consumers are still willing to spend on discretionary items and services, as well as on essentials.
However, not all categories performed well in September. Sales at furniture stores fell by 2.8%, while sales at electronics and appliance stores dropped by 1.5%. These categories may have been affected by the higher prices and lower availability of some products, as well as by the comparison with the strong sales in previous months.
The outlook for retail sales
The retail sales report is an important indicator of the health of the US economy, as consumer spending accounts for about two-thirds of the gross domestic product (GDP). The report also provides insights into the behavior and confidence of consumers, who face various challenges and opportunities in the current economic environment.
Some of the factors that could affect retail sales in the coming months are:
- The delta variant of COVID-19, which could pose a risk to public health and economic activity if it leads to more infections, hospitalizations, and deaths.
- The labor market, which could boost consumer income and spending if it continues to recover and create more jobs and higher wages.
- The fiscal policy, which could provide more support to consumers and businesses if Congress passes the infrastructure and social spending bills proposed by President Joe Biden.
- The monetary policy, which could influence consumer borrowing and spending if the Federal Reserve decides to taper its bond-buying program and raise its interest rates in response to inflation.
- The holiday season, which could stimulate consumer demand and spending if retailers offer attractive deals and promotions and consumers feel optimistic about their financial situation.
