It’s like someone turned on the spigot in July and forgot to turn it off.
By Wolf Richter for WOLF STREET.
Retail sales jumped by 0.7% in November from October, to $720 billion, seasonally adjusted, and October was revised higher (blue in the chart below), and so we look at the 3-month average (red in the chart), which irons out the month-to-month squiggles and includes the revisions, and it jumped by 0.7% as well.
November’s sales increase and the three-month average sales increase annualized amount to +8.6%! And it wasn’t just November, or the past three months. The spending spree started in July.
Retail sales have sharply accelerated month-to-month, starting in July. It’s like someone turned on the spigot in July and forgot to turn if off:
- 6-month January-June total: -0.1%, for an annual pace of -0.2%.
- 5-month July-November total +3.2%, for an annual pace of +7.6%.
Our Drunken Sailors, as we lovingly and facetiously have come to call them, are in the mood to spend, empowered by wage increases that have been outrunning inflation for the past two years, and flush with cash in money market funds and CDs that is still earning over 4% in interest, and buoyed by massive gains in their stock holdings, cryptos, home prices, and whatever, while their credit burden is historically low and their credit largely in excellent condition, even on their credit cards except for a small subsegment of subprime-rated accounts.
Second wind for inflation? This is where consumer demand is coming from, people are out there buying, and they’re buying feverishly online, once again spending money left and right, especially on big ticket items, such as motor vehicles. And after two years of big price declines, prices of new and used vehicles are already rising again. And that’s bad news on the inflation front. The Fed needs to watch out here in order to not throw more fuel on this demand.
The wave of immigration contributes to demand growth. 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.
Most of the immigrants work as soon as they find work, and they spend money, though they’re generally not big spenders. And this spending by this large new population is contributing to this sharp increase in demand.
Retail sales by category.
The biggest drivers of this growth were the two biggest retailer categories: new and used vehicle sales and ecommerce, combined accounting for 36% of total retail sales.
We have already seen that new vehicle retail sales in November, in terms of the number of vehicles delivered to retail customers, jumped by 10% year-over-year.
New and used vehicle dealers and parts stores (#1 category, 19% of total retail):
- Sales: $141 billion
- From prior month: +2.6%
- From prior month, 3-month average: +1.7%
- Year-over-year: +6.5%
The spike in dollar-sales in 2021 and 2022 was caused by ridiculous price increases. Starting in mid-2022, prices dropped overall, with used vehicle prices plunging. These price declines caused the dollar-sales for those 18 months to flatten out, despite rising retail unit-sales.
But that’s now over – prices are rising again while unit-sales volume is surging:
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: $127 billion
- From prior month: +1.8%
- From prior month, 3-month average: +1.4%
- Year-over-year: +9.8%
Food services and drinking places (#3 category, 13% of total retail), includes everything from cafeterias to restaurants and bars.
After a decline in early 2024, growth resumed:
- Sales: $97 billion
- From prior month: -0.4%
- From prior month, 3-month average: +0.4%
- Year-over-year: +1.9%
Food and Beverage Stores (12% of total retail). Prices per CPI for food at home exploded from 2020 to early 2023, which caused the spike in sales, then flattened out at high levels for a while, before starting to rise again:
- Sales: $84 billion
- From prior month: -0.2%
- From prior month, 3-month average: +0.2%
- Year-over-year: +1.8%
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: no change
- From prior month, 3-month average: +0.2%
- Year-over-year: +3.4%
Gas stations (7% of total retail sales). Dollar-sales at gas stations move in near-lockstep with the price of gasoline. The price of gasoline plunged starting in mid-2022 and has continued to trend lower. These price declines push down dollar-sales at gas stations. Sales at gas stations also include all the other merchandise gas stations sell.
- Sales: $52 billion
- From prior month: +0.1%
- From prior month, 3-month average: -0.4%
- Year-over-year: -3.9%
Sales in billions of dollars at gas stations (red, left axis); and the CPI for gasoline (blue, right axis):
Building materials, garden supply and equipment stores (6% of total retail). The pandemic remodeling boom petered out in late 2022, and sales fell for a while. Starting in June this year, sales began rising again, though they remain well below the peak of the pandemic boom:
- Sales: $42 billion
- From prior month: +0.4%
- From prior month, 3-month average: +0.8%
- Year-over-year: +5.8%
Health and personal care stores (5% of total retail). Note the sharp drop in early 2024, but in May, sales began to recover:
- Sales: $38 billion
- From prior month: unchanged
- From prior month, 3-month average: +0.3%
- Year-over-year: +2.9%
Clothing and accessory stores (3.7% of retail):
- Sales: $26 billion
- From prior month: -0.2%
- From prior month, 3-month average: +0.3%
- Year-over-year: +2.2%
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My worry is that wage increases may have slowed for the bottom half at a time when inflation appears to be reaccelerating.
Fair question. Is the inflation target really 2%? Inflation has been materially higher for years now.
Stock markets smell a problem.
A well respected multi billion asset manager said this week that the stock market IS the economy. It aligns with what I’ve been thinking for many years.
Consumer spending is red hot in my little corner of the internet. Every time I refresh my orders page, there are new orders to be filled.
I feel a little bad for the salespeople standing around with no sales… customers just want to order stuff online instead. Store pickup orders placed thru the retailer’s website are also a big thing now.
Also, since the cost to rent is now substantially lower (30-40%) than the cost to own a home, and 66% of Americans rent, they are saving huge amounts every month that are available to spend on everything else.
Really? So when my rent went up 30%, but home ownership went up 70%, I have 40% left to spend? Why wasn’t I informed sooner? I’m getting a boat!
The other way around, about 66% of households own their home.
76% of American homeowners have mortgages below 5% or no mortgage at all.
While I’m sure *some* number of people have sold their home to rent for less, most renters have been renters while rents have been skyrocketing the past few years. So saying renters are “saving huge amounts” is not accurate IMHO.
In a very technical sense, it”s accurate. In a real sense it’s absurd. I’m “saving” many thousands of dollars by not buying and insuring a Ferrari, but the cost of my current car didn’t go down and the cost to insure my car keeps going up! More to the point, I can’t afford a Ferrari so by definition I can’t afford any of the luxuries I might buy with the money I’m saving not buying one
You mean the people who locked in low rates are saving tons while rents have skyrocketed. Saving a ton as the old place I rented more than doubled in rent since covid. Cheeehoo. Where am I going next??
It seems like, of the working class, there are two sub-categories. Those who have purchasing power due to their low mortgage rates, and those who are holding on for dear life waiting for rates to drop. People with purchasing power are keeping inflation on the rise which is crushing the people that are burdened by the homes they recently bought. The fed isn’t going to make significant rate cuts until the upper echelon of the working class cools it. The difference between this run of inflation and the last is that there are so many of these people locked in at 3%. Remember Wolf’s post a couple weeks ago where he commented that rates have almost never been at covid or post 2007 levels? The gap is growing again and this time its with the working class.
This is only true if you’re comparing the costs of a new purchase (at current prices & rates) to renting.
However the result changes if you compare owner-occupied costs of a home, purchased at a lower price & rate, to current rents of a similar dwelling.
Consumers rushed to buy cars and other goodies to preempt Trump’s
25% tariff on Mexico and Canada and 60% on China.
The spread between US 10Y and the ECB, BoC, BOJ and PBOC is too high. Money might flow from all over the globe to finance our economy, unless they hike to 4%/4.5%. If they do there will be a run on the banks.
“The spread between US 10Y and the ECB, BoC, BOJ and PBOC is too high.”
This is by design. The Fed wants to out-hawk the rest of the world’s central banks to keep a bid under Treasuries.
In 2025 demand for Chinese goods from Europe and the US might wane.
Iran has no money to maintain their oil assets. It’s (-)20C in Iran. The gov shut water and electricity for 3hrs/ day. They are using mazut (heavy oil for ships) to generate electricity. 90% of Iran is covered by poisonous clouds. If Iran cannot produce the PBOC might have to hike.
I was at a mall the other day, not my usual haunts. But there was certainly a happy energy and a LOT of bags being carried around. People not just browsing but buying. Maybe the election combined with record breaking stock prices have led to a “party like it’s 1999” vibe. That’s 25 years ago if you can believe it. Of course we all know how that ended but at the moment it was definitely something to be a part of. If you sold before the “pop” you were happy..but few did.
Something’s got to give as the national debt is set to hit $40T in about a year – but for now people are spending and dining out and buying cars and seeing $16 movies.
I’m a car dealer, selling vehicles mainly under $20k. This time of year prices are usually down, well……. These prices have drastically increased! Buy stock in Nike, going to be a lot of people walking.
For the most important people in the USA, (hint: That’s not us) 2 to 5% inflation is glorious. Pour it on Fed, the ultra-rich have never had it so good.
I am not an important person, but I have positioned my portfolio to benefit from rising inflation. You can too.
The Fed is now getting ready to lower interest rates in the face of rising inflation. This is the same J Powell who kept interest rates zero bound in 2022 in the face of 9% inflation. This clown is the worst Federal Reserve chair in the History of the Fed. He needs to submit his resignation ASAP.
He’s a lot better than the noodle Trump is going to put in his place, LOL. Trump wants 0% interest rates whatever inflation is. Trump is a real estate guy, he hates these interest rates we now have.
I don’t sense (just an opinion) that inflation is done. People are keeping up with the Jones’s and then some. But – my property tax is going up 5.24% next year. And my YouTube TV is going from 72 to $82 per month next year. And my utility asked the State for a 9% increase. Auto insurance 12% and so on. It aint over yet.