Top Gain in Retail Sales Since March Says More about Inflation than Spending

Summary The 1.7% increase in October retail sales bested consensus expectations and sets up holiday sales for another record gain, but the real insight in today’s report is how wallet share is shifting as consumers reprioritize spending amid the highest inflation in 30 years.

Sales are Rising but Prices Rising Faster

Retail sales increased 1.7% in October on the heels of upward revisions to the prior month’s figures. E-commerce posted the largest monthly gain of 4.0% on the month. Prices played a role in lifting the monthly sales figures once again, with core goods consumer prices up another 1% in October. Encouragingly, even excluding some of the categories most associated with recent price hikes like autos and gas, the monthly gain of 1.4% was double the consensus expectation for a more modest 0.7% increase. An interesting insight on consumer psyche: inflation is getting in consumers heads. This was already evident in the recent deterioration in consumer sentiment, but if you look carefully you can now see it in the hard data as well. If price gains outstrip spending increases, that implies a volume decline. For example, gasoline sales rose 3.9%, though the fact that motor fuel prices were up 6.1% suggests that consumers may be starting to combine trips or otherwise limit their driving. Spending at restaurants was flat, which is surprising given that consumer prices for food away from home rose by the most since 1981 in October (prices +0.8% month-over-month). Consumers are still going out to eat, but perhaps some diners are moving down the price curve from upscale full-service dining experiences toward more humble fast-casual options. READ FULL ARTICLE>>