US Retail Figures Show Inflationary Creep

By Glenn Dyer | More Articles by Glenn Dyer

There’s no denying inflation was evident in the data, but the surge in US retail sales was very real in October and shows that consumption in the world’s biggest economy remains buoyant heading into the biggest selling season of all – Thanksgiving-Christmas.

Figures from the US Commerce Department showed headline retail sales jumped 1.7% last month after increasing 0.8% in September.

September’s figure was revised up from the originally reported 0.7% rise and is a small but important indicator that US retailing is much healthier than the headlines about inflation and port congestion suggest.

That means sales have now risen for three straight months and October’s outcome was much better that market forecasts for a rise of 1.4%. Sales soared 16.3% over the year to October.

The increase was led by motor vehicles, with sales at car dealer jumping 1.8% (thanks to higher prices for vehicles). But unit motor vehicle sales rose in October for the first time in six months as the shortage of computer chips and other products continued to ease.

Quarterly results from two major retailers – Walmart (the biggest) and the largest hardware operator, Home Depot also supported the growing optimism about the sector and the forthcoming holiday selling season (see separate story).

Economists noted other areas where inflation was evident in the data. Higher petrol prices because of rising oil prices saw a 3.9% gain in October, helping push up consumer prices by 0.9% for the month.

Online retail sales rebounded 4.0% amid signs of consumers early ordering for the holidays because of fears of shortages (sparked by alarmist media stories).

Receipts at building material stores rose 2.8% thanks to the continuing building surge and furniture outlets sales rose 0.4%. Sales at electronics and appliance stores jumped 3.8%. But sales at clothing stores fell 0.7%.

But when you worked through the figures to what was happening in core sales in the month – the data was also very solid.

Excluding automobiles, petrol, building materials and food services, retail sales jumped 1.6% last month after increasing 0.5% in September. Core retail sales correspond most closely with the consumer spending component of the national accounts and GDP.

Even when adjusted for inflation, retail sales rose solidly last month, leaving the pace of growth in consumer spending above the weak 1.6% annual rate logged in the third quarter.

Economists believe it’s the fading impact of the pandemic in more parts of the US which is helping lift spending, along with a more resilient consumer confidence than many surveys show.


And to underline the strength of US retailing, Walmart and Home Depot both reported on Tuesday better than expected quarterly sales and earnings performances even though both have had to wade through the impact of rising costs and logistics congestion and confusion.

Walmart, America’s biggest retailer, said that its US sales grew 9.2% in the three months to September while total revenue (including international businesses) rose 4.3% to $US140.5 billion.

That was enough to get the giant to lift its forecast for the current quarter and the huge selling season – a move that took analysts by surprise.

The improved forecast came as the retailer took a hit to its profit margins from the measures it has had to take to fight Covid and congestion in its supply chains, which have included chartering its own cargo ships.

Walmart put the hit to margins at 42 points – news that would have seen a sell-off. Instead the company explained it had helped keep sales growing faster than forecast.

Walmart reported consolidated operating income was $US5.8 billion, an increase of 0.2%, negatively affected by $US400 million related to divestitures. Those divestitures saw the company drop $US5.9 billion in international sales for the quarter.

And hardware giant Home Depot also outperformed expectations with a 15% earnings surprise — on $US36.82 billion in sales, up 9.8%. Comparable sales for the third quarter of fiscal 2021 increased 6.1 percent, and comparable sales in the US jumped by 5.5%.

Home Depot said net earnings for the third quarter of fiscal 2021 were $US4.1 billion up 20% compared with net earnings of $US3.4 billion in the same quarter of 2020.

Both retailers pointed to problems from higher prices and labour shortages.

Walmart has recently raised its starting wage to $US12 an hour and is now as much as $US17 in some stores to attract and retain workers.

The retailer said that it has been chartering its own ships to get around the shipping congestion, especially on the US West Coast and has been pushing to hire 150,000 additional workers ahead of the holidays.

The company said on Tuesday that it was managing supply chain issues by rerouting products to less congested ports and extending overnight hours to help unload cargo.

Walmart said the supply chain issues and labour costs were adding to expenses, but they were being offset by the stronger sales growth.

Despite all these added cost pressures Walmart raised its annual sales and profit forecast in anticipation of a surge in demand for toys and apparel during the looming holiday season.

Walmart’s extra spending on logistics and ordering saw it increase US inventory by 11.5% ahead of the selling season, with executives saying the measures taken to tackle port delays have positioned Walmart well for the holidays. Normally a surge in inventories would also send investors rushing for the door.

“We have the people, the products, and the prices to deliver a great holiday season for our customers and members,” Chief Executive Officer Doug McMillon said. Walmart said that it had hired over 200,000 new store and supply chain workers to tackle the holiday rush.

“The long period of sustained demand for goods has stretched supply chains, resulting in out of stocks and inflation,” McMillon said.

“Fighting inflation is in our DNA,” he told an online briefing.

Meanwhile Home Depot said it saw the strong demand in the quarter carryover into the current 4th quarter at a slightly higher pace.

Home Depot executives told analysts that same-store sales growth for the first two weeks of the fiscal fourth quarter are slightly higher than third-quarter levels.

Higher prices for copper and building materials helped boost customer spend per visit but Home Depot said that while the number of transactions in the quarter dipped, the average value of each sale rose.

Timber prices again eased – they had been a real headache earlier in the quarter. Home Depot said that customers were also trading up to more expensive products such as exclusive paint ranges, higher value appliances and kitchen and bathroom products.

Home Depot CEO Craig Menear told analysts that the company has received most of its goods for the fourth quarter.

However, roughly 95 ships outside the ports of Los Angeles and Long Beach, California are still waiting to be unloaded. Executives said that they weren’t very concerned about the supply chain delays.


About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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