Revised data for July shows core retail sales rose 0.4%, not the previously mentioned 0.8%. Thus, the drop in sales experienced before July appears to be over. According to August and September data, demand for goods increased despite the resilience of inflation. Purchases rose 0.3%, with sales of most goods excluding gasoline up 0.8%.
The strong growth in retail sales is attributed to the flexibility of the labor market. Also, no sharp layoffs have been reported despite high inflation. However, economists believe that the flexibility experienced by the labor market is pro forma. They argue that companies are overwhelmed with workers and don’t want to lose them after the hiring difficulties we saw in 2021 during the Covid pandemic.
Note that by the end of July, the economy had 11.2 million jobs, resulting in two jobs for every unemployed person. Thus, the tightening of monetary policy did not affect the labor market. However, there are signs that the manufacturing industry is feeling the pinch as factory production numbers have remained the same. According to the August report, production in factories did not increase. However, the Philadelphia Federal Reserve report shows that plant numbers in the Mid-Atlantic region have experienced some decline.
In New York, the report shows that manufacturing rose steadily in August. But according to the chief US economist, Rubeela Faroogi, factory activities in New York are likely to remain moderate due to reduced demand due to higher interest rates.
Overall, retail sales rose steadily in August despite rising inflation. The recovery in August sales numbers is due to increased car purchases and the desire to eat more often after lower gasoline prices. September numbers show that the Fed’s rate hike action is moderating demand.
Thus, consumer spending continues due to the strong labor market. According to reports, fewer new people filed unemployment claims in the third week of September. The number recorded is the lowest in the last month.
Increases in the Consumer Price Index in August also indicate a stabilization of the economy. Therefore, the Fed is likely to unleash another rate hike to try to nip inflation in the bud. Also, there are no signs of recession, persuading the Federal Reserve to take drastic measures to control inflation.
Some of the activities that may have influenced the increase in sales include back-to-school shopping, spending on general merchandise, and car sales. The postponement of gasoline prices also led to an increase in spending on basic materials. Here are more details.
Apparel and general merchandise sales increased while furniture stores revenue fell 1.3%. Garden equipment sales also rose 1.1%, while hardware sales fell 0.1%. Book, musical instrument, and hobby stores saw an increase in sales. Revenue from bars and restaurants also rose 1.1%.
Shares sold off while the dollar held steady against global currencies. US Treasury prices also fell after interest rates rose.
Selling evs and used cars
In August, sales of electric cars increased by 60%. The increase was associated with an increase in the number of charging stations. Shoppers have also discovered the tremendous benefits of electric vehicles. Auto sales increased by 60% in the first quarter of the year. The number of used cars sold also increased in September. Notably, sales of used cars aged 3-5 years increased by 2.8%.
Although it is believed that high inflation hampers spending, it is difficult to explain what is happening in the economy. Economists believe the increases in sales are attributable to the strong labor market. However, there are concerns that if inflation is not brought under control, employees will start agitating for high salaries to help them deal with rising inflation.