Retail sales rose 0.6% in June after a slightly downwardly revised 1.7% in May. A lack of both new and used vehicle inventories suppressed vehicle sales for the second consecutive month. Everything from supply chain bottlenecks, including severe computer chip shortages that have idled production, to robust demand has pushed up prices and depleted dealer inventories. Margins for vehicle dealers have also widened as supplies were depleted even further during the month. Spending on motor vehicles and parts alone dropped 2% during the month but is still nearly 50% above the pandemic-induced lows of a year ago.
Retail sales excluding vehicles surged 1.3% for the month. Spending at clothing retailers, traditional department stores, health and personal care stores and restaurants and bars all posted stunning gains. Consumers scrambled to buy new luggage to travel again, clothes to fill those bags and makeup to adorn newly unmasked faces.
Spending at restaurants and bars crossed the inflation-adjusted, pre-pandemic peak in May. That has not staved off a surge in small businesses failures, which have increased dramatically since the onset of the crisis. Larger chains that more rapidly adopted existing technologies to speed orders, deliveries and automate payment systems were able to weather the storm better than mom-and-pop operations. They also easily pivoted to online deliveries and are now better able to hike wages to staff restaurants and bars to ramp up.
Separately, the number of larger events has picked up, including weddings delayed during the crisis. This is adding to spending on catered events and at restaurants. Business travel and entertainment is picking up but remains a fraction of pre-pandemic levels. Large trade shows are being planned, but there is a lot of uncertainty regarding how the Delta variant and confusion around masking will impact in-person attendance. Many businesses are being judicious in how they spend their entertainment and travel budgets.
Spending at electronic and appliance stores also bounced back after a pullback in May. Stores were finally able to catch up on some of the shortages triggered by bottlenecks in the supply chain on appliances. Spending online rebounded after a drop in May. Consumers want the instant gratification of getting what they want by walking into stores and will search for what they can’t find online. The pandemic accelerated the role that online shopping plays in the economy by several years, forcing us to learn how to effectively order just about anything to be delivered to our front doors.This is at the same time that stores have nearly perfected their ability to deliver via online, in-store and curbside pickup of merchandise.
Higher prices at the gas pump and the return of many workers to offices boosted gasoline station sales. The downside is higher gas prices increase the costs of commuting, especially for low-wage workers. This is raising wages needed for low-wage earners to justify returning to workplaces that they still see as highly risky. Sadly, the surge we saw in inflation in the second quarter more than offset the rise in wages.
Conversely, many areas that had benefited from the pandemic took it on the chin in June. Spending at big-box discounters, garden and building materials stores, and on furniture, slowed as we shifted our focus to stepping out rather than enhancing our homes to be more comfortable during quarantines.
Core retail sales, which feed directly into the GDP calculation, surged 1.1% during the month. Add what is likely to be another solid month of gains for travel and tourism, which will be reflected when the broader data on consumer expenditure is released later this month, and consumer spending easily jumped at a double-digit rate in the second quarter. That is after adjusting for the increase in inflation.
Consumers are tired of being cooped up and are stepping out. With that shift in behavior and a tailwind of stimulus and savings, spending is accelerating faster than businesses can reopen and ramp up. That has generated heat, some of which is likely to linger. The Federal Reserve has taken note and is beginning to lay the groundwork for tapering asset purchases and raising interest rates.
Measuring current economic conditions to help plot and adjust course
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