Retail Sales v. Raging Inflation, Stimulus Miracle March, and the Red-Hot Shift to Services

It’s rough out there in multiple ways.

By Wolf Richter for WOLF STREET.

Retail sales, released by the Commerce Department today, are sales only of goods, not services. But services account for nearly two-thirds of what consumers spend their money on and include rents, plane tickets, hotel bookings, streaming services, insurance, concert tickets, and the like. There has been a surge in consumer spending on services in recent months, as consumers revert to the pre-pandemic spending patterns and shift spending back to services, which had collapsed. Spending on services had spiked by 12.4% from a year earlier in February, easily outpacing inflation. So this shift to services from goods – meaning from retail – has been happening.

Retail sales in March rose by 0.5% from February, seasonally adjusted, and by 16.8% not seasonally adjusted, to $677 billion, up by 7.0% from Stimulus Miracle March last year, when the stimulus checks got spent, sending retail sales into a dizzying spike.

Stimulus Miracle March 2021 was a very tough month to beat. But Americans did blow by it. What they didn’t do is blow by the now raging inflation.

Raging inflation in retail.

Inflation in retail sales means inflation in durable goods such as cars, furniture, electronics, and tools; and in nondurable goods such as food, household supplies, and gasoline.

Durable goods inflation cooled off a tiny bit in March, due to a sharp price drop in used vehicles, after gigantic spikes, and the durable goods CPI fell 0.9% in March from February. But it was still up by 17.4% year-over-year (red in the chart below). Nondurable goods prices spiked by 3.8% in March from February, and by 13.1% year-over-year (purple).

So retail sales rose 0.5% in March. Durable goods prices dropped 0.9%, which account for the majority of retail sales. But nondurable goods prices spiked by 3.8%. And the result for retail sales in March, after inflation, is “mixed.”

On a year-over-year basis, there is nothing mixed about this, with durable goods inflation up 17.4% and non-durable goods inflation up 13.1% compared to the 7.0% increase in retail sales.

Sales at New and Used Vehicle and Parts Dealers, the largest retailer category, fell 1.9% in March from February seasonally adjusted (red line), on stalling new vehicle prices and declining used vehicle prices. But not seasonally adjusted, sales jumped to $145 billion, nearly matching the all-time record of March 2021, which had been the last month before auto dealers started running low on inventories (purple line).

The year-over-year matching of the record was accomplished by huge year-over-year price increases, which made up for the 15% plunge in the number of used vehicles sold and for the 25.9% plunge in the number of new vehicles sold.

Sales at ecommerce and other “nonstore retailers,” the second-largest category, fell 6.4% seasonally adjusted in March from February, the second month in a row of declines, to $90 billion, and was up only 1.8% year-over-year compared to Stimulus Miracle March:

Food and Beverage Stores: Sales rose 1.0% for the month, seasonally adjusted, to $79 billion, and jumped by 8.4% year-over-year, powered by price increases:

Food services and drinking places: Sales jumped by 1.0% for the month seasonally adjusted, to a record $75 billion, and by 19.4% year-over-year. This is over two-and-half times the rate of CPI inflation for food away from home (6.9%):

General merchandise stores: Sales spiked 6.6% for the month to a record $62 billion, seasonally adjusted, and were up 4.8% from Stimulus Miracle March 2021. Walmart and Costco are in this category, but not department stores.

Gas stations, oh my, no surprises here: Sales spiked by 8.9% for the month, to a record $64 billion, seasonally adjusted, and by 37% year-over-year, driven entirely by the spike in gasoline prices.

Building materials, garden supply and equipment stores: Sales rose 0.5% for the month, to a record $43.6 billion, eking out a year-over-year gain of 0.6% from Stimulus Miracle March:

Clothing and accessory stores: Sales jumped by 2.6% for the month, and by 7.3% year-over-year to $27 billion, seasonally adjusted:

Miscellaneous store retailers (includes cannabis stores): Sales rose 0.8% for the month to a record $15.6 billion (seasonally adjusted), up 13% from a year ago. This category tracks specialty stores, including cannabis stores, beer brewing supplies, telescopes, art supplies, etc.

Department stores: sales fell 0.3% for the month, to $12 billion, but were up 7.4% from Stimulus Miracle March. Compared to the peak in the year 2000, sales were down 39%, as Americans have abandoned that type of retailer, triggering the closure of thousands of stores and numerous bankruptcies:

Furniture and home furnishing stores: Sales rose 0.7% for the month (seasonally adjusted), and by 3.6% year-over-year, to $13 billion:

Sporting goods, hobby, book and music stores: Sales jumped by 3.3% for the month, to $9.4 billion (seasonally adjusted), but were down by 5.1% from Stimulus Miracle March:

Electronics and appliance stores: Sales rose 3.3% for the month, to $7.5 billion, seasonally adjusted, but were down 9.7% from Stimulus Miracle March. This category covers specialty stores, such as Best Buy. Sales of consumer electronics and appliances are huge, but they’re spread over many types of stores, such as General Merchandise (above). And much of it has gone to ecommerce.

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By Harriet