Retail Sales Jumped 1.7 Percent in October - The New York Times

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Retail sales jumped in October for the third straight month, as consumers in the United States kept spending despite fast-rising prices, shipping delays and labor shortages that threaten a critical part of the American economy.

Rising prices were partly responsible for the 1.7 percent gain in spending, which was bigger than economists had expected, but they weren’t the only factor. Even when adjusted for inflation, consumer spending is higher than it was before the start of the pandemic, government data shows.

Many American consumers seem to be riding out the rise in prices, thanks to rising wages and savings balances that grew during the pandemic — in part because of government stimulus programs that put cash directly in people’s bank accounts.

Monthly retail sales

Note: Advance monthly sales estimates for retail and food services, seasonally adjusted

Source: Commerce Department

The New York Times

The sizable jump in spending also likely reflected an early start to the holiday shopping season, analysts said, a shift driven by consumers’ concerns that supply chain shortages would mean that gifts would not arrive in time for the holidays.

That push “trumped the shock” of higher prices, said Beth Ann Bovino, the chief U.S. economist at S&P Global.

“This October reading was the grand opening of shopping for the holidays in December,” she said. “I’m sure some folks started looking earlier because of worries that they won’t be able to find the item they’re looking for once everybody gets out to shop.”

The gains were led by rises in spending on electronics, building materials and e-commerce, the Commerce Department reported on Tuesday. September sales were also revised higher to show a 0.8 percent jump that month.

The increase in sales was broad in October, the data showed. Spending at gas stations rose about 4 percent in October, while auto sales climbed 1.8 percent. Sales at sporting goods, hobby, musical instrument and book stores also saw a 1.5 percent increase.

Also on Tuesday, two major retailers, Walmart and Home Depot, reported strong results for their latest quarters, bolstering the view that consumers have been absorbing higher prices. The reports follow other data that shows signs of life in the American economy. Earlier this month, the Labor Department reported that hiring in October jumped after a summer lull, which could also help bolster sales.

Understand the Supply Chain Crisis

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Covid’s impact on the supply chain continues. The pandemic has disrupted nearly every aspect of the global supply chain and made all kinds of products harder to find. In turn, scarcity has caused the prices of many things to go higher as inflation remains stubbornly high.

Almost anything manufactured is in short supply. That includes everything from toilet paper to new cars. The disruptions go back to the beginning of the pandemic, when factories in Asia and Europe were forced to shut down and shipping companies cut their schedules.

First, demand for home goods spiked. Money that Americans once spent on experiences were redirected to things for their homes. The surge clogged the system for transporting goods to the factories that needed them and finished products piled up because of a shortage of shipping containers.

Now, ports are struggling to keep up. In North America and Europe, where containers are arriving, the heavy influx of ships is overwhelming ports. With warehouses full, containers are piling up. The chaos in global shipping is likely to persist as a result of the massive traffic jam.

No one really knows when the crisis will end. Shortages and delays are likely to affect this year’s Christmas and holiday shopping season, but what happens after that is unclear. Jerome Powell, the Federal Reserve chair, said he expects supply chain problems to persist “likely well into next year.”

But spending, which is a key driver of economic activity in the United States, remains threatened by shortages and rising prices. Consumer prices jumped 6.2 percent in October from a year earlier, its fastest pace in three decades, the Consumer Price Index showed, and the cost of food, gasoline and other essential household goods has risen even faster.

Manufacturing giants including Procter & Gamble, Nestlé and Danone have raised the prices for products including food and cosmetics this year, blaming the rising costs on supply chain constraints.

Big retailers, such as Walmart and Home Depot, began chartering their own ships to circumnavigate shipping congestion. Walmart reported that supply chain issues and labor costs were adding to expenses but that they were being offset by sales growth. Walmart reported in its quarterly earnings report on Tuesday that its revenue climbed 4.3 percent during the three months ending October, while Home Depot reported that sales rose 9.8 percent to $36.8 billion in its third quarter compared with the same period last year.

That jump in prices has been taking its toll on consumers’ expectations for the future. A recent survey by the University of Michigan, which measures consumer expectations and optimism regarding the economy, showed sentiment had fallen to its lowest level in a decade.

Even the early start of holiday shopping is a risk to future sales, said Michelle Meyer, the head of U.S. economics at Bank of America.

“If the holiday shopping season is earlier and showing strength in the beginning, there could be concerns that by the end of the season there could be a tapering of demand, especially as prices continue to increase,” Ms. Meyer said.

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Retail Sales Jumped 1.7 Percent in October - The New York Times
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