EconoFACTS

November 16, 2021 | 09:07

U.S. Retail Sales: Inflated But Not Deflated

Economist

Senior Economist and Director
Economics

Sal Guatieri is a Senior Economist and Director at BMO Capital Markets, with over two decades experience as a ma... (Read more)

Sal Guatieri

Senior Economist and Director
Economics

Sal Guatieri is a Senior Economist and Director at BMO Capital Markets, with over two decades experience as a ma... (Read more)

American retailers racked up their best month since the rebates-led spike in March, suggesting inflation has yet to clamp down on purchasing power and Q4 GDP growth could top our current call of 4.5% annualized. Retail sales jumped 1.7% in October, above expectations, while the prior two monthly increases, already impressive, were bumped even higher. This puts sales up a sizzling 16.3% in the past year and 15.8% annualized in the past three months, though a good chunk of the increase is inflated by rising prices. The control measure that feeds into personal expenditures leaped 1.6%, suggesting a modest upside risk to our current estimate for real consumer spending to rebound 3.5% annualized in Q4 after downshifting to 2.0% in Q3.

Cash registers rang loudly for most retail groups last month. After four straight monthly declines to August, auto dealers and parts suppliers posted a second straight monthly advance in receipts, by 1.8%, and a 6% pop in new unit sales suggests a good slice of the increase is real, rather than just due to soaring prices. While the microchip shortages that have hounded the industry don't appear to be easing, the upturn in sales is a testament to strong pent-up demand for an item that has been hard to find this year. Another group facing chip issues, electronics and appliance retailers, also racked up a large 3.8% gain in receipts. Gas station receipts were flattered by another big price jump at the pump.

There weren't many weak spots in October, but clothing sales did retreat after a prior large advance, and food services were flat, despite receding virus cases in October (now reversing course). Still, restaurant receipts are up 29.3% in the past year and above pre-virus levels.

Bottom Line: Strong gains in employment, wages and wealth, as well as elevated savings for many households, have more than compensated for inflation's hit to spending power. As well, some sales are likely getting pulled forward in anticipation of delivery delays and product shortages (and even higher prices?) this holiday season. Should inflation continue to climb, it will pose a larger challenge to families on tight budgets. But for now, both consumers and the economy, in aggregate, look to cap the year on a high note.

Table 1 - United States — Retail Sales

(month/month % change)

Source: BMO Economics, Haver Analytics