Rising prices flatter US retail sales; Demand for goods remains strong

  • Retail sales up 0.7% in September
  • Higher prices helped increase revenue
  • Core Retail Sales Up 0.8%; August corrected slightly upwards

WASHINGTON, Oct.15 (Reuters) – U.S. retail sales unexpectedly rose in part in September as more expensive automobiles boosted dealership revenue, but there are fears that supply bottlenecks could disrupt the Christmas shopping season amid ongoing shortages.

Given the partial spike in inflation, the surprise surge in retail sales reported by the Commerce Department on Friday did little to alter economists’ expectations that consumer spending is likely to stall in the third quarter. The calculation of the gross domestic product includes inflation-adjusted sales, which rose moderately in the past month.

“The solid retail sales report reflects both consumer resilience and rising prices,” said Sal Guatieri, chief economist at BMO Capital Markets in Toronto. “The main concern now is that supply chain disruptions and microchip shortages are spreading, limiting choice and reducing demand for goods.”

Retail sales rose 0.7% last month. August data has been revised up to show retail sales rose 0.9%, up from the 0.7% previously reported. Economists polled by Reuters had forecast retail sales to decline 0.2%. Consumer prices rose 0.4% on a monthly basis in September, suggesting that so-called real retail sales rose 0.3% over the past month.

An ongoing global microchip shortage is forcing automakers to cut production, causing showroom inventory to run out of stock, driving prices up. The shortage of semiconductors has also affected the supply of electronics and household appliances. The congestion of the ports due to the lack of labor has also resulted in fewer goods on the shelves during the Christmas sales, which limits the choice for buyers.

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In the wake of the COVID-19 pandemic, spending shifted to goods from services, which put a strain on supply chains. The return to services such as travel and restaurants has been slowed by a summer resurgence of coronavirus infections fueled by the Delta variant.

Retail sales consist primarily of goods, with services, including healthcare, education, and hotel accommodation, accounting for the remainder of consumer spending.

Economists expected consumers to start their Christmas shopping early to avoid empty shelves, which would likely increase retail sales in October. Spending remains high despite falling consumer sentiment thanks to strong household wealth and rising wages due to a tight labor market.

A University of Michigan poll on Friday showed that consumer sentiment continued to decline in early October due to the endless pandemic and political tussle in Washington over raising the federal government’s debt ceiling and spending more on infrastructure and social programs.

“The strength this month and next could be the result of well-wired supply shortages causing consumers to start shopping earlier than usual during the Christmas season,” said Veronica Clark, an economist at Citigroup in New York. “This effect and possibly binding delivery restrictions could subsequently lead to a decline in retail sales in November and December.”

Retailers are cautiously optimistic that bottlenecks won’t derail the holiday season.

People buy clothes at a Target retail chain in Westbury, New York, the United States, May 20, 2021. REUTERS / Shannon Stapleton

“We have had record imports this year and are confident that together we can overcome these challenges to ensure a healthy and happy Christmas season,” said Matthew Shay, president of the National Retail Federation in Washington.

Wall Street stocks traded higher. The dollar lost against a basket of currencies. US Treasury bond prices fell.

Reuters graphic


Auto dealer sales rose 0.5% in September after falling 3.3% in August. As the number of units declined, the increase in revenue reflected higher prices.

The average price of a new vehicle topped $ 45,000 for the first time in September, according to a report from Kelley Blue Book, a California-based vehicle valuation and automotive research company.

Online retail sales increased 0.6%. Sales in clothing stores increased 1.1%. More workers returned to offices on Labor Day after the holidays and may need new cloakrooms after working from home for more than a year. Revenue in building materials stores rose 0.1% and furniture stores rose 0.2%.

Sales at petrol stations rose by 1.8% due to higher petrol prices. Revenues also rose in the sporting goods, hobby, musical instrument and bookstores.

As the coronavirus infections subsided, the flow of traffic to restaurants and bars increased and sales increased by 0.3%. Restaurants and bars are the only service category in the retail sales report. Sales in electronics and household appliances decreased by 0.9%.

Excluding automobiles, gasoline, building materials and food services, retail sales rose 0.8% after rising 2.6% in August. These so-called core retail sales correspond most closely to the consumption expenditure component of the gross domestic product.

Economists believe that consumer spending, which accounts for more than two-thirds of US economic activity, was flat in the third quarter after robust annualized growth of 12.0% in April-June. The estimates for growth in consumer spending for the third quarter are mostly below a rate of 2.0%.

This also suggests that GDP growth slowed sharply in the July-September quarter from 6.7% in the second quarter. The growth estimates for the third quarter range from just 1.3% to 4.0%. Part of the expected slowdown in growth reflects the dwindling stimulus from the government’s trillion-dollar pandemic aid.

“Inflation will have a big drag on real consumer spending growth in the third quarter,” said Shannon Seery, an economist at Wells Fargo in Charlotte, North Carolina. “The biggest challenge for the fourth quarter will be finding everything on the shopping list as the supply chain crisis deepens.”

Reporting by Lucia Mutikani; Editing by Chizu Nomiyama, Paul Simao and Andrea Ricci

Our Standards: The Thomson Reuters Trust Principles.

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