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Economic Report
Nov 13th - Nov 18th 2022 Written by: CH Analyst Nilabh Anand
Retail Sales
Actual: 1.3% Previous: 0% Forecast: 1%
Retail sales is a data report that tracks consumer spending and demand for finished goods
reported each month by the US Census Bureau. This week's Retail Sales releasing saw the
biggest increase in the last 8 months, reporting a 1.3% MoM increase in retail spending - with
majority of the gains coming from Food Services & Drinking, Gasoline Stations, Food &
Beverage. However, the REAL TRUTH is always in the details.
Although this looks like a good sign for consumer spending and consumer financial health on
the surface level - its true nature is quickly revealed when you observe the current economic
climate. In a non-inflationary economic climate, retail sales can be used as a tool to gauge
consumer health and spending behavior. However, in an inflationary economic environment,
it is not an economic data indicator that can accurately reflect the true state of consumer's
financial health due to the nature of the Retail Sales' calculation.
The calculation of Retail Sales is based on the dollar amount spent - therefore the reported
numbers are not adjusted for price increases. So, during times of high inflation, retail sales
will general show an increase. But, this increase is not due to increased consumption in the
economy, it is rather due to elevated prices causing consumers to pay more.
Further, the 1.3% gain is a false confirmation that demand for goods is holding up during
this tightening cycle. When in fact, consumer demand for goods has been continuing to
decline. Consumer confidence continues to decline as consumers are limiting their spending
to just essentials. Retail Sales is one of the most deceiving pieces of data to assess consumer
health. The 1.3% increase does not mean the consumer is healthy, but rather the consumer
continues to face price burdens as their most essential items have seen surges in prices over
the past year. The image below shows Real Retail Sales (adjusted for inflation) and its peak in
March 2021.
In the previous CPI report from November 10th, 2022, categories of Food and energy saw
increases MoM and have seen large increases YoY. With Food seeing a 0.6% increase and
Energy seeing a 1.8% increase MoM. The effect of these continuous price increases in food
and energy are reflected in the Retail Sales release as the main contributions come from from
Energy, Food and Drinks. (explained below)
To conclude, the two factors that are leading the increase in Retail Sales for this month are
inflationary pressures on essential goods (food & energy) and the California state-wide
stimulus cheque which totaled $9.5 billion in money sent out to California residents. Further,
we understand that this is not an accurate indicator of the financial health of consumers and
the economy, when in fact Real Retail Sales are actually -0.3% YoY (inflation adjusted). The
key takeaway is that this piece of data will be presented to make it seem like consumers are
still strong and spending, however the real truth is always in the details.