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US retail sales continued to show resilience in the face of inflation and moves to cool demand in October.
Numbers released by the US Commerce Department on Wednesday tell the story:
Overall retail sales grew 1.3% on a monthly basis from September, totalling $694.5 billion. That’s a big gain over last month’s report, when sales for September were unchanged from August.
US retail sales, Oct. 2021-Oct. 2022. (Courtesy of FRED)
On an annual basis, retail sales were up 8.3%. That outpaces the October inflation rate of 7.7%. That's significant, as retail sales are not adjusted for inflation.
Core retail sales, as measured by the National Retail Federation to exclude automobile dealers, gasoline stations and restaurants, showed October sales were up 0.7% from September and up 6.5% unadjusted year over year
Nonstore retailers, which include ecommerce, posted a 1.2% increase for the month, while growing 11.5% year-over-year.
US nonstore retail sales, Oct. 2021-Oct. 2022. (Courtesy of FRED)
Other core categories showing change included furniture and home goods (+1.1% monthly), health and personal care stores (+0.5% monthly). Meanwhile, electronics and sporting goods/hobbies each declined 0.3%. Apparel showed no change from the prior month.
Grocery stores (+1.4% monthly) and gas stations (+4.1%) continue to see gains in spending amid a period of 40-year-high inflation that is driving up food and fuel prices.
The results covered a month when retailers sought to kick off the holiday shopping season. October brought a host of early holiday deal events from Amazon, Walmart, Target and Wayfair, as they sought to move overstocked inventory and meet demand from consumers seeking to get a jumpstart on their lists.
“October’s performance is a strong foothold as we go into the holiday season,” said NRF Chief Economist Jack Kleinhenz, in a statement. “Spending has gradually slowed but remains solid...Early holiday deals that enticed customers appear to underly the October numbers and more promotions will be seen in November and December, which are historically the big holiday shopping months.”
The data also comes as the job market continues to remain historically tight, bolstering the availability of steady income to make purchases.
“In October we saw the strength in the labor market continue to support consumer purchasing power,” said Michelle Meyer, US chief economist at the Mastercard Economics Institute, in a statement. “Coupled with heavy online promotions, consumers got a head start on their holiday shopping, fueling another strong month of retail sales.”
What does it mean for the holidays?
The report will undoubtedly lift spirits 10 days before the heart of the holiday shopping season is set to arrive with Black Friday. It comes on a week that Walmart, Lowe's and Home Depot each reported better than expected results, for the most recently-completed quarter as well.
However, high inflation and the Federal Reserve's moves to curtail demand through four interest rate hikes are leading many retailers to temper forecasts for peak season.
Amazon's recent warning of reduced sales for the quarter cast a pall over investors, if not retail as a whole. Likewise, Walmart on Tuesday forecast tepid net sales growth for the fourth quarter of 3%, which would significantly trail growth of 8.2% for the quarter running August-October.
Reports of a consumer pullback are also starting to surface. On Wednesday, Target reported comparable store sales growth of 2.7%, which came in far under its forecasts. Nearly all of the slowdown was driven by our discretionary categories, apparel, home and hardlines, executives said. The retailer, which has a mix that is tilted more toward general merchandise than Walmart’s grocery-heavy baskets, also said it is taking a more conservative outlook ahead of the holiday season.
"In the latter weeks of the quarter, sales and profit trends softened meaningfully, with guests' shopping behavior increasingly impacted by inflation, rising interest rates and economic uncertainty,” said CEO Brian Cornell, in a statement. “This resulted in a third quarter profit performance well below our expectations.”
A tough season seems likely, yet the latest retail sales data offers the latest sign that spending may continue to hold up, as it mostly has all year.
MasterCard SpendingPulse released a forecast this week indicating that Black Friday is set to see a 15% increase in retail sales over last year. The season is expected to be even more promotional than usual amid inflation, yet MasterCard expects a more concerted return to in-person shopping to bring gains. In particular, department stores are expected to see a 25% year-over-year increase in sales across physical and digital channels.
“Expect Black Friday shopping to be in full force across channels this year,” said Steve Sadove, a senior advisor for Mastercard and former CEO of Saks Incorporated. “While retailers have already been heavily discounting this season, consumers and retailers are likely holding out for some special offers to land on the biggest promotional day of the year.”
Trending in Economy
Labor disputes on the West Coast could cause further disruption heading into peak season.
When the first half of 2023 is complete, imports are expected to dip 22% below last year.
That’s according to new data from the Global Port Tracker, which is compiled monthly by the National Retail Federation and Hackett Associates.
The decline has been building over the entire year, as imports dipped in the winter. With the spring, volume started to rebound. In April, the major ports handled 1.78 million Twenty-Foot Equivalent Units. That was an increase of 9.6% from March. Still it was a decline of 21.3% year over year – reflecting the record cargo hauled in over the spike in consumer demand of 2021 and the inventory glut 2022.
In 2023, consumer spending is remaining resilient with in a strong job market, despite the collision of inflation and interest rates. The economy remains different from pre-pandemic days, but shipping volumes are beginning to once again resemble the time before COVID-19.
“Economists and shipping lines increasingly wonder why the decline in container import demand is so much at odds with continuous growth in consumer demand,” said Hackett Associates Founder Ben Hackett, in a statement. “Import container shipments have returned the pre-pandemic levels seen in 2019 and appear likely to stay there for a while.”
Retailers and logistics professionals alike are looking to the second half of the year for a potential upswing. Peak shipping season occurs in the summer, which is in preparation for peak shopping season over the holidays.
Yet disruption could occur on the West Coast if labor issues can’t be settled. This week, ports from Los Angeles to Seattle reported closures and slowdowns as ongoing union disputes boil over, CNBC reported. NRF called on the Biden administration to intervene.
“Cargo volume is lower than last year but retailers are entering the busiest shipping season of the year bringing in holiday merchandise. The last thing retailers and other shippers need is ongoing disruption at the ports,” aid NRF Vice President for Supply Chain and Customs Policy Jonathan Gold said. “If labor and management can’t reach agreement and operate smoothly and efficiently, retailers will have no choice but to continue to take their cargo to East Coast and Gulf Coast gateways. We continue to urge the administration to step in and help the parties reach an agreement and end the disruptions so operations can return to normal. We’ve had enough unavoidable supply chain issues the past two years. This is not the time for one that can be avoided.”