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February 21, 2023

The Real Retail Sales Story - Flexport Weekly Economic Report

The Real Retail Sales Story - Flexport Weekly Economic Report

phil levy headshot
Phil Levy

Chief Economist, Flexport

February 21, 2023

January’s retail sales numbers show that U.S. consumers are still buying, though not evenly across all sectors and only at a moderate pace. When smoothed and adjusted for goods inflation – or even deflation! – a different view emerges from the ebullient headline numbers.

In Focus - Tracking the U.S. Consumer

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U.S. consumers can sometimes be inscrutable. Are they still on a pandemic-induced goods-buying spree? Or are they worried about emptying their savings and rising interest rates? If they do shop, do they prefer ordering online or popping into stores along Main Street?

Last week we got some clues from the January Retail Sales report, though the clues are a bit buried. The headline number was that retail sales rose 3.0% in January, after falling 1.1% in December. Even taking those two months together, it’s a 1.9% rise. Where’s the subtlety in that?

The first problem is that the reported numbers are nominal. That’s been problematic lately; regular readers will know by now that we rarely cite nominal figures because, without adjusting for inflation, they are misleading.

A second problem is that these numbers jump around a lot month-to-month and we’re more interested in the trend, the signal more than the noise. A third problem is that this number mixes together a lot of different shopping experiences, from car dealerships to gasoline stations to restaurants and bars. As it happens, restaurants and bars were the leading category in January, up 7.2%. Cheers!

This week’s chart aims to sort this out.

Instead of looking just at volatile January numbers, we compare three-month periods. The chart compares November 2022-January 2023 numbers with either the previous quarter or with the same period a year earlier (November 2021-January 2022, labeled as “annual). The quarterly numbers are seasonally adjusted, but they are not annualized. Thus, the reported 0.6% increase in retail sales, if maintained for a year, would be a 2.4% annual pace – a small acceleration.

To deflate the numbers, we use the BLS CPI series for “Commodities Less Food and Energy.” This matters because there has been a big divergence between goods prices and services prices, with the latter now accounting for the bulk of inflation. Averaging the deflators over the relevant months, goods prices were up 2.4% for the annual comparison, but actually down 1.3% for the quarterly.

And with that we see that it’s been a very difficult time for electronics and appliance stores, and getting worse. For motor vehicles, furniture, and clothing, however, the last three months were positive and notably better than the nine months that came before.

Department stores serve as a good example of why all the adjustments are necessary. In nominal terms, from December to January (not shown), department store sales were up 17.5%. But the three-month quarterly comparison shows a shrinkage of 2.0%. Nonstore retailers – largely online – showed steady quarterly growth at a 2.8% annualized rate, but that’s less than the rate that prevailed in the annual comparison.

So what do all these clues lead us to conclude about U.S. consumers right now? They are favoring online purchases over traditional retail, though that preference is easing. While average retail sales are rising, there is substantial and important variation across sectors. Bottom line: consumers are not stopping. They are continuing to buy, just at a more moderate rate (which is consistent with our Flexport Consumption Forecast for the months ahead).

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Latest Flexport Metrics & Research

This past week we refreshed our forecasts for the Post-Covid Indicator (PCI), the Trade Activity Forecast (TAF), and the Flexport Consumption Forecast.

Economic Developments

Euro area GDP growth for Q4 2022 rose by only 0.1%. It was flat in the broader EU. The first estimate for seasonally-adjusted and calendar-adjusted data for the full year, showed 3.5% growth in the Euro area.

The value of UK retail sales figures for January%20February%202020%20levels.) increased 4.1% year-on-year on a seasonally-adjusted basis. Excluding fuel, that figure was 3.7%.

U.S. manufacturing output rebounded in January, up 1.0% for the month, after declines in December and January. That left manufacturing output nearly flat year-over-year, up just 0.3% from January 2022. Manufacturing capacity was up slightly in January from the months before, though down 0.6 percentage points from a year earlier. Manufacturing capacity, meanwhile, grew 1.0% over the year.

Last week’s release of U.S. January CPI data revealed prices still rising but at a slowing rate. Year-on-year they were up 6.4% compared to the 6.5% results for December. “Core” CPI – excluding volatile food and energy prices – was up 5.6% for the year, led by the cost of shelter. Among those core prices, service inflation (7.2%) is far outpacing goods inflation (1.4%).

The broadest version of the Producer Price Index rose sharply in January. The 0.7% monthly jump in the index for final demand was the fastest since June last year. The broad PPI was up 6.0% over the last year, while a narrower core measure was up 4.5%.

Provisional estimates for Japan’s seasonally adjusted exports were down 6.3% year-on-year in January. Imports were down 5.1% on the same basis.

U.S. seasonally-adjusted inventory/sales ratios held steady in December for merchant wholesalers, while rising slightly for retailers and manufacturers relative to November. For all but the manufacturers, the inventory/sales ratios have risen notably from December 2021 levels.

Political Developments

The CBO warned in its latest budget and economic outlook that unless measures are taken on the debt ceiling, the U.S. would not be able to meet its obligations starting in July, giving it one month longer than the previous estimate. That would result in default or the government delaying payment for some activities.

Among the many recent developments in U.S. - Mexico trade, Mexico pushed back a deadline for __imposing its approaching ban on GM corn imports from the U.S.__ U.S. Agriculture Secretary Tom Vilsack expressed disappointment that the ban was delayed rather than abandoned.

Disclaimer: The contents of this report are made available for informational purposes only and should not be relied upon for any legal, business, or financial decisions. Flexport does not guarantee, represent, or warrant any of the contents of this report because they are based on our current beliefs, expectations, and assumptions, about which there can be no assurance due to various anticipated and unanticipated events that may occur. This report has been prepared to the best of our knowledge and research; however, the information presented herein may not reflect the most current regulatory or industry developments. Neither Flexport nor its advisors or affiliates shall be liable for any losses that arise in any way due to the reliance on the contents contained in this report.

About the Author

phil levy headshot
Phil Levy

Chief Economist, Flexport

February 21, 2023

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