October Retail Sales Robust as Holiday Period Begins

Retail spending in October rose $10.7 billion to $638.2 billion for the month – up 1.7 percent from the previous month and up 16.3 percent from a year earlier. These improvements were not merely a result of rising prices: adjusted for inflation, sales were up 0.8 percent month-over-month and 9.5 percent year-over-year. While these data probably foreshadow robust consumer spending over the coming months, some of the strength seen in October may be front-loaded purchases associated with worries about shortages and delays over the coming holiday period. Looking toward 2022 we are concerned that protracted supply chain bottlenecks and inflation could hurt consumer spending.

Spending on goods was the primary driver of consumer demand in October. Spending on motor vehicles and parts rose by 1.8 percent despite production constraints associated with supply chain disruptions. Retail sales excluding this category grew by a robust 2.0 percent.  Retail control, which excludes motor vehicles, gasoline, and building supplies was also up 1.6 percent from the previous month. Spending at non-store retailers was among the strongest categories for the month – rising 4.0 percent from September – while spending at general merchandise stores rose just 0.8 percent. Even as the Delta wave continues to ebb, US consumers appear to still prefer spending online to in-person.

Meanwhile, spending on in-person services was flat for the month. Spending at food services and drinking places rose just 0.03 percent from a month earlier. While this spending category should grow more quickly as the threat of the pandemic dissipates, any winter flare-ups in new COVID-19 cases could hurt growth.

Overall, these data show a sustained increase in spending following a challenging period. As consumer confidence data continue to improve following the Delta wave it appears that American consumers are eager to enjoy the holiday period. However, entering 2022 there is cause for concern about the durability of strong consumer spending. The supply chain issues underlying much of the high inflation rates seen over the past six months do not appear to be dissipating and could very well impact consumer confidence and spending next year.