NEW YORK -- Americans continue to spend at a steady pace in September, despite sticker shock in grocery aisles and car lots. This is because of slowing global supply chains that slow down the flow of goods.
According to the U.S. Commerce Department, retail sales increased by 0.7% seasonally adjusted in September compared with the previous month.
This was a better showing than we expected. However, there are still concerns about how resilient shoppers will become if prices rise and supply shortages cause frustration leading up to the holiday season.
Consumption accounts for 70% of U.S. GDP and participation by consumers is essential to a sustainable recovery from a recession caused by pandemics.
However, there is no evidence Americans are slowing down. Last month's spending was high everywhere from clothing and sporting goods to cars lots.
Tiffany Markofsky (chief communications officer at Camp, a small chain of toy stores) said that "they are coming to enjoy this experience with their families that was not possible in a long while."
Camp reports strong sales in its stores, Markofsky stated. He also said that Camp has been able secure popular toys thanks to close ties with suppliers.
Spiking prices are a direct cause of consumers' increased spending. Today, a gallon of gasoline costs $1 more than it did last year. In many cases, Americans don't buy more; they just pay more.
This week, the U.S. reported that prices consumers pay increased 0.4% in September. They've increased 5.4% over the last 12 months, which is the fastest rate since 2008. Prices for gasoline, furniture, automobiles, and grocery shopping trips have all increased.
Sal Guatieri (senior economist, director at BMO Capital Markets), wrote Friday that American consumers still have plenty of fuel left, despite the availability of some more expensive items.
Guatieri was especially surprised at the willingness of Americans not to stop buying cars when there is a shortage of supply or manufacturers closing down factories because they lack essential computer chips. After a plunge in auto sales last month, there was an increase of 0.6% in sales at auto dealers.
Although the spending increases were broad, the delta variant had an impact on where Americans spend their money. More dollars are spent buying goods than flying or eating out.
However, the monthly retail report only covers about a third overall consumer spending and does not include services like haircuts, hotel stays, or plane tickets. However, there have been signs of slowing spending in certain areas.
Airlines are reporting a decline in ticket sales, and they attribute this to the rise of the delta variant.
GlobalData Retail managing director Neil Saunders stated that "a lot of benefits continue to come out of a diversion in spend from services spending to spending on products." "Consumers are continuing to travel, commute, and vacation less than before the pandemic. The expenditure that would normally go on these activities has found a new home at retail."
Economists had predicted at least a 7 percent increase in holiday sales. However, the pandemic made it more difficult to predict. Due to shortages of workers and a deteriorating supply chain, steady sales in tech, clothing, and other goods is not possible.
Many global supply chains are so jumbled that many producers have left large quantities of their goods in China while they wait for shipping costs.
Even though employers have posted a record number of jobs, hiring has slowed over the past two months. According to economic data, around three million people have not resumed job searches after losing their jobs or stopped looking for work following the pandemic.
Guatieri stated, "The main concern is that supply-chain disruptions, microchip shortages, and selection limitations seem to be spreading, limiting choice and tamping up goods demand." Guatieri said that services demand is being held back by labor shortages, especially in restaurants. Supply is the problem, not demand. "
This week, President Joe Biden spoke to Americans to assure them that inflation is under control. He also announced that he would expand Port of Los Angeles operations to address supply problems.
Saunders stated that while there is a willingness to spend on these goods, September was the weakest sales growth since March. He said that momentum will not last indefinitely but will trend down until it reaches normalized levels.
He said that there might be some variation in the last months of the year, if consumers go on a major spending spree to celebrate holidays. But this will be an exception to the rule.
National chains and small businesses are well aware of the supply shortages. They have begun to promote holiday sales early in order to avoid missing holiday shipping deadlines.
Target typically offers a holiday price match program starting in November to attract customers. This year, the offer is in full force.