February 21, 2023
The Real Retail Sales Story - Flexport Weekly Economic Report
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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
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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