Retail sales very strong heading into holiday season

Retail sales very strong heading into holiday season

* Retail sales rose 1.7% m/m in October lifting its yr/yr increase to 16.3%, buoyed by motor vehicle and parts sales which accounted for roughly one-fifth of the total increase (Chart 1). Strong retail sales growth points to rising consumption in Q4, supported by rising wages, aggregate employment, and healthy household balance sheets. Some households may have begun their holiday shopping several weeks earlier this year in response to supply constraints and product shortages, contributing to the significant monthly increase in October.

* Real retail sales rose 0.7% m/m and 9.5% yr/yr despite widespread price increases, suggesting elevated inflation is yet to dampen demand significantly with businesses largely retaining the flexibility to pass rising costs on to consumers (Chart 2). The 1 percentage point difference between the m/m % change in nominal and real retail sales to a large extent reflects soaring fuel and gas prices, which rose 6.1% m/m in October.

* Control group retail sales (excluding autos, building supplies, and gas stations) – which are calculated directly in GDP – rose 1.6% m/m and are 2.8% above their Q3 average and will contribute to accelerating economic growth in Q4 as the delta variant’s impact on activity dissipates (Chart 3).

* Retail sales gains were notable in motor vehicles and parts (+1.8% m/m), in part reflecting rising vehicle prices as the semiconductor shortage continues to crimp auto production. Sales at electronics and appliance stores rose 3.8% m/m, following three consecutive monthly declines (Chart 4). Building materials, garden equipment & supply dealers sales rose 2.8% m/m and are 23% above their January 2020 levels. Non-store retail sales rose 4% m/m, a sign of the ongoing shift towards online shopping that the pandemic has accelerated.

*Import prices have accelerated, adding to domestic inflation pressures and have weighed down nominal retail sales. Prices of nonpetroleum imports rose 0.5% in October, lifting their yr/yr rise to 6.7% (Chart 5). The largest price increases have occurred in foods, feeds, and beverages: a rise of 0.5% in October boosted the yr/yr rise to 10.7%. Prices of imported autos and auto parts (+2.7% yr/yr) and consumer goods (+ 1.7% yr yr) remain moderate.

*Price increases of imported petroleum products continue to surge (+86.6% yr/yr). While the U.S. is near energy independent on a net basis, in 2021 it will import roughly $200 billion of petroleum products. The surge in prices of petroleum products directly contributes to higher consumer costs and also raises production costs across all industries that to varying degrees are passed onto consumer prices.

Chart 1: Retail Sales & Food Services ($ billions)

Chart 2: Real Retail Sales

Chart 3: Control Group Retail Sales (ex. Autos, Gas Stations, & Building Materials, $ billions)

Chart 4: Retail Sales across Different Industries

Chart 5: Import Price Index – Nonpetroleum Imports (yr/yr %)

Mickey Levy, mickey.levy@berenberg-us.com

Mahmoud Abu Ghzalah, mahmoud.abughzalah@berenberg-us.com

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