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US Retail Spending Soars as Consumers Fail to Walk the Talk

by Karl Schamotta | November 16, 2021

American consumers kept their pocketbooks in the upright and unlocked position last month, defying softening sentiment levels and rising prices to increase retail spending by more than expected. According to figures published by the Census Bureau this morning, sales at retail stores, online sellers and restaurants rose by a seasonally adjusted 1.7 percent in October compared with an upwardly-revised 0.8 percent gain in the previous month. With gas and motor vehicle sales excluded, receipts leapt 1.4 percent.

Treasury yields climbed and the dollar rose slightly: Traders raised monetary tightening expectations slightly as the headline number beat the 1.4 percent market forecast.

The jump comes even as consumer psychology has worsened: Confidence measures compiled by the Conference Board, Federal Reserve, and University of Michigan, among others, have indicated growing distress in the American economy for months. Respondents have expressed concern about slowing employment gains, falling income levels, and rising prices – something that might portend a profound slowdown in spending.

Yet the fundamentals remain strong: Labor market conditions continue to improve, with 1.41 job openings per unemployed person in September. Households are sitting on roughly $2 trillion in excess savings, while rising housing prices and equity markets have lifted net worth to record levels.

And consumers aren’t walking the talk: Growth was evident across most tangible goods categories, with sporting goods rising 1.5 percent, and building materials up 2.8 percent. With semiconductor shortages easing, sales of electronics and appliances climbed 3.8 percent, while the auto and auto parts segment rose 1.8 percent.

Softness was limited: Apparel spending slumped -0.7 percent, while receipts at food services and drinking places flatlined.

Both online and bricks-and-mortar stores gained: General merchandise operations posted an 0.8 percent increase while e-commerce sales climbed an astonishing 4 percent.

November data should continue to strengthen: Real-time payment data suggests consumers are still spending, hoping to beat price increases and obtain goods ahead of a supply-restricted holiday season.

The US consumer-of-last-resort role remains intact: Overall US imports are up more than 20 percent relative to 2019 levels, meaning that the American consumer’s appetite for tangible and manufactured goods has become one of the most critical forces powering the global economic recovery – something that is paying dividends now, but could become a vulnerability over time.

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