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US Retail Sales Rise As Americans Kick Off Holiday Shopping, Improve Economic Outlook

By on November 17, 2021 0

By Lucia Mutikani

WASHINGTON (Reuters) – Retail sales in the United States surged in October as Americans eagerly started holiday shopping early to avoid empty shelves amid shortages of some products due to the ongoing pandemic, giving the economy a boost at the start of the fourth quarter.

The strong Commerce Department report on Tuesday suggested that high inflation is not yet holding back spending, even as concerns about rising costs of living have pushed consumer confidence to its lowest level in 10 years. beginning of November. Rising household wealth, thanks to a solid stock market and house prices, along with massive savings and wage gains appear to be protecting consumers from the highest annual inflation in three decades.

“It’s more important to watch what consumers do than what they say,” said Gus Faucher, chief economist at PNC Financial in Pittsburgh, Pennsylvania. “They are worried about higher inflation, but they are still in good shape and continue to spend.”

Retail sales jumped 1.7% last month, the largest increase since March, after increasing 0.8% in September. It was the third consecutive monthly advance and exceeded economists’ expectations for an increase of 1.4%. Sales climbed 16.3% year-on-year in October and are 21.4% above their pre-pandemic level.

Several of the major US retailers this week noted an earlier start to holiday shopping. While that could lead to declines in November and December, economists and retailers expect holiday sales this year to be the best in some time.

“Today’s numbers show consumers are leaping in their holiday shopping,” said Matthew Shay, president of the National Retail Federation in Washington. “We continue to urge consumers to shop early and shop safely, and we expect this holiday season to be a banner year.”

Retail sales are mainly made up of goods, with services including healthcare, education and hotel accommodation making up the remaining portion of consumer spending. The nearly two-year COVID-19 pandemic caused a severe labor shortage, delaying deliveries of raw materials to factories as well as shipments of finished products to markets.

The strong sales increase in October partly reflected higher prices, as monthly consumer inflation rose 0.9% in October, pushing the annual rate up to 6.2%.

Stocks on Wall Street were trading higher based on the data and also as Walmart forecast a strong holiday quarter. The dollar appreciated against a basket of currencies. US Treasury prices have fallen.

Retail sales: https://graphics.reuters.com/USA-STOCKS/movanldarpa/retailsales.png

BIG WINNINGS

Sales were dominated by motor vehicles, as auto dealer receipts advanced 1.8% after increasing 1.2% in September. This increase reflects the first increase in unit sales in six months, as well as higher prices. The tight supply of automobiles due to a global semiconductor shortage is pushing up prices.

Sales at gasoline stations rose 3.9%, driven by more expensive gasoline. Online retail sales rebounded 4.0%. Receipts at building supply stores advanced 2.8%. Receipts at furniture stores as well as sporting goods, hobby, musical instrument and book stores also increased. Sales at electronics and appliance stores rebounded 3.8%.

But sales in clothing stores fell 0.7%. Sales at restaurants and bars remained unchanged despite a decline in COVID-19 infections, driven by the Delta variant. Restaurants and bars are the only category of services in the retail sales report. These sales increased by 29.3% compared to last October.

Economists hypothesized that either high inflation forced consumers to cut back on eating out, or that spending had shifted permanently in favor of goods.

“While spending on services has broadly recovered, strong demand for goods increasingly appears to be a structural shift in consumer preferences, rather than a temporary COVID-related outcome,” said Andrew Hollenhorst, chief US economist at Citigroup in New York.

Excluding autos, gasoline, building materials and food services, retail sales climbed 1.6% last month after increasing 0.5% in September. These so-called basic retail sales correspond most closely to the consumer expenditure component of gross domestic product. Adjusting for inflation, retail sales are up about 5% on an annualized basis compared to the third quarter average.

Basic Retail Sales: https://graphics.reuters.com/USA-STOCKS/gkvlgdayzpb/retailcore.png

Consumer spending, which accounts for more than two-thirds of US economic activity, grew at a lukewarm 1.7% rate in the last quarter. Economists at JPMorgan increased their estimate of fourth-quarter GDP growth to a rate of 5%, from 4%. Goldman Sachs raised its estimate by 0.5 percentage point to a rate of 5.0%. The economy grew at a rate of 2% in the third quarter.

The economy was further embellished by a separate Federal Reserve report on Tuesday showing that manufacturing output jumped 1.2% last month to its highest level since March 2019, after falling 0.7% in September.

“The economy has lost any sluggishness it might have had this summer and is growing pretty strongly,” said Joel Naroff, chief economist at Naroff Economics in Holland, Pa.

Companies are also making steady progress in replenishing depleted stocks, which should help keep factories running and support the economy. Business inventories rose 0.7% in September, according to a third Commerce Department report.

Company inventories: https://graphics.reuters.com/USA-STOCKS/lgpdwnaznvo/businv.png

(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci)