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

WASHINGTON, Oct. 15 (Reuters) – Retail sales in the United States unexpectedly rose in September, in part because more expensive motor vehicles boosted car dealership revenues, but there are concerns that the constraints of supply does not disrupt the holiday shopping season amid continued shortages of goods.

Given the partial rebound in inflation, the surprise increase in retail sales reported by the Commerce Department on Friday did little to change economists’ expectations that consumer spending likely stagnated in the third quarter. Inflation-adjusted sales, which increased moderately last month, are what is included in the calculation of gross domestic product.

“The strong retail sales report reflects both consumer resilience and escalating prices,” said Sal Guatieri, senior economist at BMO Capital Markets in Toronto. “The main concern now is that supply chain disruptions and microchip shortages appear to be spreading, limiting selection and dampening demand for commodities. “

Retail sales rose 0.7% last month. Data for August has been revised up to show that retail sales rose 0.9% instead of 0.7% as previously reported. Economists polled by Reuters predicted retail sales would fall 0.2%. Consumer prices rose 0.4% on a monthly basis in September, suggesting that actual retail sales rose 0.3% last month.

A continuing global shortage of microchips is forcing automakers to cut production, leading to a shortage of inventory in showrooms, pushing up prices. The semiconductor shortage has also had an impact on the supply of electronics and home appliances. Congestion at ports due to a shortage of workers has also meant less goods on the shelves ahead of the holiday shopping season, limiting shoppers’ choice.

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Spending has shifted to goods and services during the COVID-19 pandemic, straining supply chains. Rotation to services, such as travel and restaurants, has been slowed by a resurgence of coronavirus infections over the summer, driven by the Delta variant.

Retail sales are mainly made up of goods, with services including healthcare, education and hotel accommodation making up the remaining part of consumer spending.

Economists expected consumers to start their holiday shopping early to avoid empty shelves, which would likely keep retail sales higher in October. Spending remains strong despite declining consumer confidence, thanks to strong household wealth and rising wages due to a tightening labor market.

A University of Michigan survey on Friday showed that consumer sentiment fell further in early October due to the endless pandemic and political wrangling in Washington over raising the federal government’s debt limit as well as the increased spending on infrastructure and social programs.

“The strength this month and next could be the result of well-advertised supply shortages, causing consumers to start holiday shopping earlier than usual,” said Veronica Clark, economist at Citigroup in New York. . “This effect, along with potentially binding supply restrictions, could subsequently lead to lower retail sales in November and December.”

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

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

Wall Street stocks were trading higher. The dollar plunged against a basket of currencies. US Treasury prices have fallen.

INCREASE IN AUTOMATIC RECEIPTS

In September, sales at automobile dealers increased 0.5% after declining 3.3% in August. With the decline in unit sales, the increase in revenue reflects the increase in prices.

The average price of a new motor vehicle exceeded $ 45,000 for the first time in September, according to a report released this week by Kelley Blue Book, a vehicle valuation and automotive research company in California.

Online retail sales increased 0.6%. Clothing store sales jumped 1.1%. More and more workers have returned to the office after the Labor Day vacation and may have needed a new wardrobe after more than a year of working from home. Receipts at building supply stores increased 0.1% and those at furniture stores 0.2%.

Sales at gasoline stations jumped 1.8% on higher gasoline prices. Receipts at sporting goods, hobby, musical instrument and book stores also increased.

With the decline in coronavirus infections, the flow of traffic to restaurants and bars increased, increasing sales by 0.3%. Restaurants and bars are the only category of services in the retail sales report. Sales at electronics and appliance stores fell 0.9%.

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

Economists estimate that consumer spending, which accounts for more than two-thirds of US economic activity, remained stable in the third quarter after a robust annualized growth rate of 12.0% over the April-June period. Consumer spending growth estimates for the third quarter are mostly below 2.0%.

It also suggests that GDP growth slowed sharply in the July-September quarter from the 6.7% pace in the second quarter. Growth estimates for the third quarter range from as low as 1.3% to as high as 4.0%. Part of the expected slowdown in growth reflects the declining stimulus to trillion dollars in pandemic relief from the government.

“Inflation will drastically reduce real consumer spending growth in the third quarter,” said Shannon Seery, economist for Wells Fargo in Charlotte, North Carolina. “The main challenge for the fourth quarter will be finding everything on the shopping list as the supply chain crisis worsens.”

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

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