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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Good news!
Is the true? While this seems a bit hyperbolic like most Zero Hedge articles which must be taken with a grain of salt (along with all sources including you) but the last year has shown massive adjustment after adjustment of economic data, to the point the US numbers are hardly more believable than China.
—
On an unadjusted basis, Retail sales fell a shocking 7.5% MoM…
Source: Bloomberg
This was the biggest positive September seasonal adjustment in history…
This is stupid ignorant bullshit.
So let me walk you through this:
1. You’re talking about SEASONAL adjustments to retail sales. And they’re always big in September.
2. Seasonal adjustments reduce sales on some months and increase sales in others, and the net effect over 12 months = 0.
3. Seasonal adjustments are a percentage of not-seasonally adjusted retail sales.
4. Retail sales this year have been the highest ever, so seasonal adjustments, up and down, have been the highest for every month because they’re a percentage of retail sales. DUH!!!
[content deleted by Wolf]
I deleted the content because you didn’t read the article and have no idea what is in the article, and so posted dumb questions and BS statements about it that you wouldn’t have posted if you had read the article.
Commenting guideline #1:
https://wolfstreet.com/2022/08/27/updated-guidelines-for-commenting-on-wolf-street/
1. Do not comment on what you imagine the article says based on the headline or the first paragraph. If you haven’t read the entire article, do not comment on the article itself because you don’t know what it says, and your imagination is likely wrong. A comment will either go into the shredder or get slapped with “RTGDFA” if it’s clear to me that a commenter is discussing, or especially arguing with, what they think the article said, when the article didn’t say it.
It’s followed by commenting guideline #2:
2. If you didn’t read the article and want to comment, great, no problem, many commenters do, but make sure it’s not about what you think the article said. Your comment could be an anecdote, experiences, or observations related more or less to the topic, and that’s always welcome.
How does an economy running a trade deficit of 6+ pct of GDP post an additional 3 plus pct growth. A discrepancy of > 8 pct of the National Accounting rules.
It boggles my mind.
Trade deficit is a NEGATIVE on GDP. It’s subtracted from GDP. This economy grows DESPITE the trade deficit. If this economy had a balanced trade, growth would be much faster. That’s the tragedy of having offshored production for two decades.
Back in the day when trade was more or less balanced, annual real GDP growth ran between 3% and 6%. With the big trade deficits for the 10 years before covid, annual real GDP ran between 1.5% and 3.0%. That’s what the big trade deficit does. It’s a bad deal except for stocks.
Since the economics world is using an air vehicle analogy: there is a crash, hard/soft landing, and most interesting an uncontrolled “pitch up” (altitude) leading to a stall as vehicle speed kinetic energy is converted to gravitational potential energy with a much greater crash and most likely a “flat spin” all the way down.
As expected by most readers of Wolf Street, Powell has egg on his face. He and the rest of the Fed Governors will spin it in multiple ways but the fact remains that the Fed jumped the gun with the 50 basis points cut in September.
These guys should be tarred and feathered due to their bias towards delayed rate hikes and early rate cuts.
May inflation continue to deal them further blows until they come to their senses.
Will this prevent them from cutting in Nov? I have my doubts, time will tell, still almost another month to go. Maybe they will be working OT to spin a narrative to once again cut to pre-emp any down turn coming…
A pause is the right thing to do, since raising is completely out of the question, just do the right thing Pow Pow
If inflation will go up then it would be a bad news. But this is good. 😊
I have a hard time believing anyone at the FED is oblivious to the fact that all this data gets revised giving possibility to inflation and labor metrics reversing course against their decision, yet they went and cut prior to confirmation. I really really REALLY would love to know what they were actually thinking when they took the decision, why did they need to cut first and wait to see. I don’t believe I ever will though, all I got is theories from the social media jungle
This fully debunks the claims of “worst” economy ever, in “U.S. history.” lol. Or claims that the economy was so much better under the previous admin. The people spouting this stuff off, and parroting others shouting that b.s., are the same “headline readers” that never look at the data. But it always goes back to “belief” versus “reality” doesn’t it??
I’m not sure how you define “worst” but it’s definitely the most “fucked up” economy that I’ve ever seen.
If there’s a big recession with 10 million people out of a job, some of them for years, and college grads’ careers set back by years, would that be less “fucked up?”
I think I understand what you mean – that there are some “aspects” of this economy that are fucked up, such as the government deficits, the massive liquidity still sloshing through everything, too-high home prices, too much inflation, etc. But overall economic growth has been amazing me for over two years. I expected these much higher interest rates to do some real damage to the economy, jobs, etc. But they didn’t. This is the best economy since the 1990s* (and it had aspects that were fucked up too; I don’t know of a time when the economy didn’t have fucked-up aspects, that’s just what we get).
*not so ironically, we had similar interest rates back then.
I graduated high school in 1979. That was fucked up, but much different. High unemployment. High gas prices. No gas…. The pandemic created opportunities for stimulus or “acts” to be past with enormous amounts of money. Now it seems like everyone is drunk and drinking from a fire hose.
Another way of skinning the economy status would be to compare with what else is out there. Europe: Germany, France not go good. China not good, Japan not good. Where is a good normal economy?
Nothing will fully debunk. I just saw article titled “Elon Musk believes Warren Buffett is ‘preparing’ for a Kamala Harris presidency, as Buffett sells off stocks and grows his cash pile to $277 billion“. This is just unreal. BS in so many ways.
It’s one of the worst economies ever for lower wage earners. Massive deficit spending during good economic times resulting in massive inflation. Which is then exacerbated by massive illegal immigration.
Wages have been outpacing inflation…until the full effect of wage suppression by immigrants entering the workforce sets in. The end result will be continued inflation while higher wage earners continue to spend and do well…while lower wage earners fall farther behind.
Well done! Mission accomplished?
Our good buddy Drunkenmiller said yesterday that he thinks the 10 yr rate should be tracking nominal GDP.
From BEA: “Current‑dollar GDP increased 5.6 percent at an annual rate, or $392.6 billion, in the second quarter to a level of $29.02 trillion, a $9.5 billion larger increase than the previous estimate”
From our friends at Bankrate: “Typically, the gap between the 10-year Treasury yield and the 30-year fixed mortgage rate spans 1.5 to 2 percentage points. For much of 2023 and 2024, that margin grew to 3 percentage points, making mortgages more expensive”
This nice, hot retail spending is awkward for the Fed and even adds pressure to equity valuations, especially if the 10 year starts to accelerate to 5%+ — a few analysts are suggesting 6% range.
If we get rate cuts, a whole bunch of stuff is gonna seem really crazier than things are now.
Sadly, I don’t know why there’s a difference between Drucks nominal BEA GDP and GDPNow:
“the Atlanta Fed’s GDPNow’s estimate for inflation-adjusted GDP growth in Q3 rose to 3.4%”
Seems to be the annual rate? Seems like the drunken sailors have done well plundering!
1. Drunkenmiller’s suggestion of the 10-year yield running near nominal GDP growth is a twist of the more common version that the 10-year yield expresses expectations of future inflation rates (but that’s hard to measure). So if today, market participants expect inflation to average 4% over those 10 years, they would price the 10-year yield at 6% today. It might come out to be about similar.
2. the spread . “Bankrate…For much of 2023 and 2024, that margin grew to 3 percentage points, making mortgages more expensive””
That’s BS. The last time it was at 3 percentage points was on November 2, 2023. Then the spread narrowed sharply. All year long, it has been between 2.25 and 2.6 percentage points, except for three days in March when it went as wide as 2.75 percentage points.
In addition, the Fed’s QT of MBS will keep the spread wider than it was during QE — reducing the spread was part of the reason for the Fed’s QE at the time. But those times are gone. The Fed has said many times that it will continue to shed MBS even after QT ends, at which point it will replace them with Treasuries. So the times of the narrow spread during QE are gone:
3. Nominal GDP “Sadly, I don’t know why there’s a difference between Drucks nominal BEA GDP and GDPNow:”
Nominal GDP is NOT, repeat NOT, adjusted for inflation. GDPNow is an estimate of inflation-adjusted, repeat inflation adjusted, GDP.
The BEA produces:
— nominal GDP (“current-dollar” GDP) = not inflation adjusted
— “real GDP” = inflation adjusted.
The Atlanta Fed produces:
— an estimate of the BEA’s “real GDP” ahead of the release.
Damn. You’re good!
Love your analysis. Very thorough and in depth. Shows someone spending some time, brain cells and questions and doubts what Feds, M(W)all Street are trying to sell us. Keep up with the good work. Regretfully only able to read 1 report a day to usual inbox flooding. But keep up with the work !! Thanks JM
Yes, I haven’t found fault with Wolf yet, either. Mind you, I’m not nearly the expert that he is. I would be curious to know where Wolf got his knowledge of finance and the markets from. Is he an autodidact or did he get training?
By osmosis. I swim in it, and some of it makes it through the semipermeable membrane of by brain.
Of course your “reality” is based on your superstitious belief that GDP actually measures the value of goods and services produced, which is conceptually absurd. GDP measures GDP and a higher number is generally (but not strictly) associated with good things. It is those other good things that matter.
“…that GDP actually measures the value of goods and services produced,”
No no no no. GDP doesn’t measure production. It measures SPENDING and INVESTMENT by the economic players (consumers, businesses, governments).
GDI measures the economy from the other side: it measures Gross Domestic INCOME.
Oops. That was supposed to be a reply to 1stTDinvestor…
If immigration is pushing up the number then would not GDP per capita be a better measure? And trade deficits subtract from GDP but not govt fiscal deficits?
For the overall economy, it doesn’t matter who does the spending. It’s the overall economic growth and job growth that matters.
For social studies or social-justice studies or whatever, per capita GDP might be better. Per capita GDP is not a measure of the economy but a measure of the average individual’s GDP. Per capita GDP grew by 2.5% in Q2.
Taylor Swift is still touring in the U.S., so of course our GDP is growing rapidly. :)
The EU economy is kind of sluggish right now, they need to get Taytay to do a big tour of Europe to get their economy growing.
Chinese is also having economic troubles, but the CCP would rather mass produce copies of Taylor Swift and flood the world market.
Sobering charts which illustrate perfectly why the recent 50 bps rate cut was not only unnecessary, but recklessly stupid, if not criminal.
Otherwise known as business as usual now, sadly.
I just read that another half a trillion has been added to the deficit in the last few weeks. It will reach $36 trillion soon. How long can this continue? The shocking part is that it’s an election year and neither candidate bothers to discuss this. If inflation picks up again with the significant economic growth we are witnessing, could that cause a mini market crash?
Just wait for the refinancing wall in 2026, 2027 and beyond when trillions must be sucked out of the financial system to accommodate this new debt at higher rates. Late 2025 the market will pay attention to it, if not sooner. We will see about it then which consumers swim naked. All the data on this site is backwards looking, and even if it looks the consumer is better than anytime in the last decade, I doubt it that the FED and the Treasury dept can stop this problem. Their goal was always to suppress long term yields, but let’s see what happens.
“…refinancing wall in 2026, 2027 and beyond when trillions must be sucked out of the financial system to accommodate this new debt at higher rates.”
“must be sucked out” is not how refinancing works. Refinancing means old debt gets paid off at face value, so the borrower has to pay out the cash to lenders, and then lenders reinvest that cash in new debt that the borrower issues. There is no money “sucked out” of anything. Another expression for refinancing is “rolling over debt.” I have T-bills that “roll over” — get refinanced — every few months. It’s really smooth. Debt gets rolled over ALL THE TIME every week, including notes and bonds, no problem.
The problem is NEW issuance, NEW debt that’s in addition to the existing debt. It’s not a problem at the moment either, but some day it might. And this new issuance that adds additional debt will likely keep longer-term interest rates higher.
All recent data and last 2 months revisions have shown Economy is doing good, Labor Market is good and there are more risks to inflation.
It is very clear FED made a mistake of cutting 50 BP instead of 25BP. Had they done 25BP, they would have option of another 25 BP and pause. Now Pause is going to be difficult to communicate. That too when Powell told about possibility of another two 25BP by Year end.
Fed’s Waller calls for ‘more caution’ on rate cuts and Boastic is open for Pause. But I don’t think there will be Pause in Nov meeting. It is like accepting they made mistake of going 50BP.