Shoppers Boosted Spending Last Month, Taking on Higher Prices U.S. retail sales rose by 1.7% in October, a sign that consumers are willing to spend more headed into the holidays despite rising inflation.
(…) Spending rose sharply, by 4%, at online retailers, along with big gains at electronics, appliance and hardware stores. Grocery-store sales rose by 1.1% while restaurant and bar sales were flat. Other gains occurred at gas stations, where sales rose 3.9%, and auto dealerships, with a 1.8% gain. (…)
Core retail sales, a measurement that excludes spending on autos, gasoline, building materials and food services, were up 1.6%, showing that consumers increased discretionary spending in addition to taking on higher prices for necessary goods. Spending at sporting goods, hobby, musical instrument and book stores was up 1.5% and rose by 2.2% at department stores. Pharmacies and clothing stores both saw modest declines from the previous month. (…)
Two charts of interest:
- retail sales (blue) were flattening, even weakening a little, during the summer, but strongly recovered in the last 3 months: up 16.1% annualized. Weekly payrolls (black) rose 12.5% a.r. in the same period while core goods inflation accelerated 6.1% a.r..
- Control sales (ex the volatile autos, gasoline and building materials) are now 23.3% above their pre-pandemic levels and substantially above trend while restaurant and bar sales are 9.4% above their pre-pandemic levels and right on trend.
My belief is that the recent acceleration in sales is inflation related: prices are rising amid widespread shortages and consumers are listening to retailers telling them “if you see it, buy it.” Early Christmas!
- Walmart Raises Forecast and Says Shelves Are Stocked for Holiday Shoppers Comparable sales jumped 9.2%, fueled by groceries; retailer says it has plenty of inventory despite global supply-chain problems
Comparable sales, those from U.S. stores and digital channels operating for at least 12 months, increased 9.2% in the quarter ended Oct. 29 compared with the same period last year. U.S. e-commerce sales rose 8% from a year ago, when shoppers flooded online because of the pandemic. (…)
U.S. inventory rose 11.5% in the quarter as “preparation for an expected strong holiday season,” the company said. (…)
“The company is hedged well in an inflationary environment,” said Mr. McMillon on a call with analysts. “In this case our cost inflation is higher than our retail inflation, but we have lots of flexibility,” to move prices around for some products while holding prices steady on others, he said. (…)
Gross profits fell due to higher supply-chain costs, Walmart said, partially offset by fewer discounts and added revenue from the retailer’s growing advertising business. Operating cost rose due to higher wages, offset by strong sales and lower Covid-19 related costs. (…)
“When the stimulus dollars started to go away, the hiring situation changed,” said Mr. McMillon. “We saw people come back in a matter of weeks. We were back to being staffed.” Walmart, the country’s largest private employer with around 1.6 million U.S. workers, added about 200,000 workers in the last quarter, the company said Tuesday. Walmart’s minimum wage for hourly workers is $12 per hour.
During the quarter, “the customers had money,” said Mr. McMillon. “At some point, that’s going to come to an end. Hopefully, that’s a gradual process.”
BTW, WMT’s management anticipates Q4 U.S. comps up ~5%. That’s after +9.2% in October….
BTW #2: WMT’s Q3 net sales rose 4.1%, gross profit +2.3% and Operating Income +0.2%.
- Target Posts Strong Sales, Bolsters Holiday Inventory The retail chain said sales rose in the most recent quarter as holiday sales kicked off early and that it has been able to stock up ahead of Black Friday, joining other retail giants that have sidestepped supply-chain snarls.
Comparable sales, those from stores or digital channels operating at least 12 months, rose 12.7% for the quarter ended Oct. 30. E-commerce sales rose 29% in the quarter. (…) Adjusted earnings per share rose to $3.03 from $2.79 last year. (…)
The company has pulled forward some shipments of goods and chartered its own vessels to counteract transportation disruptions heading into the holiday season when most retailers earn a significant portion of annual revenue.
Inventory for the quarter rose 17.6% compared with the same period last year, the company said. It has focused on keeping prices lower than competitors, as prices rise generally for a host of goods, said Mr. Cornell. “We think value is going to be a critically important battle,” he said. (…)
The retailer raised its sales guidance for the final quarter of the year. It now expects high single-digit to low double-digit percentage growth in comparable sales, compared with a previous estimate of high single-digit sales growth. Target continues to expect that its full-year operating income margin rate will be 8% or higher.
BTW, TGT’s Q3 total sales rose 13.3%, gross profit +3.8% and Operating Income +3.9%.
With inventories so high, sales better be there in November and December. Chase’s control sales tracker through Nov. 7 is strong:
Powell’s Five Inflation Benchmarks Are Starting to Flash Amber In a speech to the Fed’s annual Jackson Hole conference, held virtually in late August, Powell sketched out five ways of assessing the outlook for inflation and argued that each of them suggested there was no cause for alarm.
- 1. Are inflation pressures broad-based? In August, Powell said the spike in inflation up until that point was largely the result of price rises in a narrow group of goods and services directly affected by the pandemic. That’s no longer the case.
- 2. Are price rises moderating in those goods and services that have experienced the biggest run-ups? While there were some signs that was happening a few months ago, it’s no longer so clear-cut. Yes, used-car price inflation has come down a lot from its 45.2% high in June, though it is still running in excess of 25%.
- 3. What is happening to wages?
- 4. What is happening to longer-term inflation expectations?
- 5. Are longer-term global forces still pushing down inflation?
(…) Lawrence Summers said in a Nov. 15 tweet. “Today, all five pillars are wobbly at best.”
Data released Wednesday showed that items representing nearly 30% of the shopping basket used to calculate the cost of living saw annual price gains of 5% or more in October, according to analysis by Bloomberg. That’s up from around 20% in September, and represents a warning sign for Bank of England policy makers who are hoping the current bout of inflation won’t become generalized.
More worryingly, the hotspots are seen across the economy and not confined to high-profile areas. All 12 of the broader categories in the basket have at least one element where inflation is running above 5%, with restaurants and hotels and transport making up the biggest proportions.
The report from the Office for National Statistics showed the annual rate of inflation was at a decade-high of 4.2% in October, and the BOE expects the headline rate to hit 5% in the spring. That’s prompted speculation officials will raise rates for the first time since the pandemic at their December meeting.
Bloomberg’s Joe Weisenthal adds:
Core inflation is at its highest in almost a decade. Meanwhile, another measure of prices, the Retail Price Index just saw its fastest gains since 1991. What’s interesting too is that the U.K. didn’t have that extra boost of stimulus that the U.S. did. And BoE communication has been significantly more hawkish than the Fed’s. And yet…
The Electric Vehicle Invasion Is Already Here The adoption curve is getting steeper than anyone thought.
(…) Drivers around the world will buy about 5.6 million electric passenger vehicles this year, according to a new report from BloombergNEF released in concert with the COP26 United Nations Climate Change Conference. That’s almost double the number purchased last year and, more importantly, it represents almost 8% of all vehicle sales. (…)
BloombergNEF expects commercial buyers to purchase 150,000 electric vehicles this year, also nearly double last year’s tally. Stretching how far these machines can travel between charges plus predictable drive cycles and relatively low maintenance costs increasingly tilt the economics in favor of things like electric mail trucks and battery-powered flower delivery vans. (…)
John Authers: Covid Fear Shows Signs of Returning to the Stock Market The leisure sector is turning down again as infections rise. This could scramble many calculations.
What this chart appears to illustrate is the waning efficacy of the vaccine over time. As we enter the winter months, the pressure is going to be on once more to launch a vaccination campaign. (…)
