Online Purchases Lift Retail

Retail sales bounced back 0.7% in August after plummeting a downwardly revised 1.8% in July. Vehicle sales fell on widespread shortages and price markups. Chip shortages idled production again in September, while flood damages from Hurricane Ida boosted demand. Inventories are so tight that some smaller dealers are unsure they will be able to cover overhead costs and could go under if inventories can’t be replenished soon. The automakers, for their part, have been leaving out chips that add to the bells and whistles but not the functionality of vehicles to get more on dealer lots.

Retail sales excluding vehicles rose a much stronger 1.8% in August, after being revised down to a 1% drop in July. Consumers pivoted back to spending online and at grocery stores in response to the Delta variant. Spending in restaurants and bars flatlined during the month and fell after adjusting for inflation, as those most cautious about contagion decided not to dine indoors. The same is true for spending at gasoline stations, which plummeted 2.6% after adjusting for inflation. Some of this was due to a cancellation of vacation plans. The surge in prices at the gas pump has been especially hard on low-wage workers, even after taking into account the upward pressure on prices.

Core retail sales, which factor directly into the GDP figures for the quarter, rose a whopping 2.5% in August after dropping 1.9% in July. Back-to-school spending and the ongoing push to upgrade our homes buoyed spending at big-box discounters and on furniture and appliances. Spending on clothing fell for a second consecutive month after adjusting for inflation. Apparel retailers have also suffered supply chain problems as the spread of the Delta variant exacerbated production and shipping problems. Brace yourselves for slim pickings on store shelves this holiday season.

Bottom Line
Retail sales came in better than expected for August but followed large downward revisions to July. Data on the worst effects tied to the spread of the Delta variant and disruptions from Hurricane Ida are still ahead of us. This is at the same time that the additional support to unemployment insurance for millions has expired. We are poised to eke out a very modest gain for consumer spending during the quarter.

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