This demand growth is adding to renewed inflation concerns. The huge waves of immigrants in 2022-2024 are part of this demand growth.
By Wolf Richter for WOLF STREET.
Upon the release of the retail sales data today, the Atlanta Fed’s GDPNow’s estimate for inflation-adjusted GDP growth in Q3 rose to 3.4%, nearly entirely because the inflation-adjusted growth of its consumer spending component got boosted by retail sales today.
Retail sales jumped by 0.4% in September from August, seasonally adjusted, and August and July retail sales were revised higher.
The three-month average, which includes the revisions and irons out the month-to-month squiggles, jumped by 0.6% — annualized, that’s a growth rate of 7.0%!
Adjusted for inflation, retail sales are even hotter because prices of many goods that retailers sell declined, in particular gasoline and durable goods (motor vehicles, electronics, tools, appliances, furniture, etc.). Food prices are one of the exceptions among goods and have continued to rise.
Consumer spending on goods is adjusted for inflation by the inflation rates of those goods. Since mid-2022, many goods have experienced deflation. We track the CPIs of the big categories of goods here with charts, including the CPIs for used vehicles, new vehicles, food, gasoline, energy, apparel and shoes.
And if adjusted for deflation in those goods, inflation-adjusted spending is even higher, as reflected by today’s rise of the Atlanta Fed’s GDPNow.
The 10-year-average inflation-adjusted annual GDP growth for the US is about 2%. If GDP growth in Q3 comes in anywhere near the Atlanta Fed’s estimate of 3.4%, it would be another quarter of a much higher than normal growth rate.
The past four quarters of real GDP growth were all revised up as consumer income, spending, and the savings rate, were substantially revised up. Three of the four quarters had much higher than normal growth rates:
Q2 2024: +3.0%
Q1 2024: +1.6%
Q4 2023: +3.2%
Q3 2023: +4.4%
Today’s retail sales data are an additional sign in a trend that led us to muse over the weekend: What If There’s No Landing at all, But Flight at Higher Speed and Altitude than Normal, with Higher and Rising Inflation?
Immigration explains part of it. The US population has surged in 2022 and 2023 by 6 million people due to immigration, and in 2024 has continued to rise, according to the Congressional Budget Office, using ICE and Census data.
These newly arrived people work, or are looking for work, and they’re buying stuff, though they’re generally not big spenders but rather frugal. But even their frugal spending is pushing up retail sales to some extent, especially in certain categories, such as at food and beverage stores, and at General Merchandise stores, which include Walmart, the largest grocer in the US, which is what we can see here.
Retail sales in total and by category.
To iron out the month-to-month squiggles and revisions, we like to look at the three-month averages, which all charts below show (all seasonally adjusted).
The three-month average of total retail sales rose by 0.6% in September, and by 2.3% year-over-year, despite deflation in many goods that retailers sell.
Note the slowdown in retail sales late last year and early this year. But our Drunken Sailors, as we lovingly and facetiously have been calling them for over a year, are in top form once again, splurging at retailers.
New and used vehicle dealers and parts stores (#1 category, 19% of total retail):
Sales: $134 billion
From prior month: +1.3%
Year-over-year: +0.7%
The spike in dollar-sales in 2021 and 2022 was caused by ridiculous price increases. Starting in mid-2022, prices have dropped, as used vehicles spiraled into a historic plunge. The relatively flat dollar-sales for the past 18 months, despite rising retail unit-sales, are a result of these price drops:
Ecommerce and other “nonstore retailers” (#2 category, 17% of retail), includes ecommerce retailers, ecommerce operations of brick-and-mortar retailers, and stalls and markets:
Sales: $124 billion
From prior month: +0.6%
Year-over-year: +7.0%
Food services and drinking places (#3 category, 13% of total retail), includes everything from cafeterias to restaurants and bars.
Much of it is very discretionary spending. After a slowdown – an actual decline! – earlier this year, growth resumed over the past five months and has recently picked up momentum:
Sales: $96 billion
From prior month: +0.7%
Year-over-year: +3.7%
Food and Beverage Stores (12% of total retail). Prices, after exploding from 2020 to early 2023, flattened out at very high levels, and recently have been rising only slowly, according to the CPI for food at home:
Sales: $84 billion
From prior month: +0.5%
Year-over-year: +2.3%
General merchandise stores, without department stores (9% of total retail), including retailers such as Walmart, which is also the largest grocer in the US.
Sales: $65 billion
From prior month: +0.4%
Year-over-year: +3.1%
Gas stations (8% of total retail sales). Dollar-sales at gas stations move in near-lockstep with the price of gasoline. The price of gasoline plunged from mid-2022 through mid-2023, and has since then meandered lower, including in September. These price declines push down sales in dollars:
Sales: $52 billion
From prior month: -0.8%
Year-over-year: -5.6%
Sales in billions of dollars at gas stations, including other merchandise that gas stations sell (red, left axis); and the CPI for gasoline (blue, right axis):
Building materials, garden supply and equipment stores (6% of total retail). The pandemic-era remodeling boom fizzled in late 2022, and expectations were that spending would revert to trend, and that process occurred for a while. But in the spring this year, growth picked up again:
Sales: $41 billion
From prior month: +0.4%
Year-over-year: +0.2%
Clothing and accessory stores (3.7% of retail):
Sales: $26 billion
From prior month: +0.3%
Year-over-year: +2.3%
Miscellaneous store retailers (2.2% of total retail): Specialty stores, including cannabis stores. Cannabis had seen large price declines last year and earlier this year. But recently, prices started to rise again, according to the U.S. Cannabis Spot Index (there is no CPI for cannabis yet), and this is likely the reason for the sharp increase in the three-month average:
Sales: $15 billion
Month over month: +1.2%
Year-over-year: +7.1%
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