Retail Sales Disappoint Despite Surging Prices

In October, retail sales surged much higher than expected, rising 1.7%. The mainstream gushed over retail spending, asserting that it was a sign that the economy is booming. At the time, I argued that it wasn’t necessarily good news.

Well, the news just got even worse. Retail sales in November disappointed, despite another big surge in inflation.

Retail sales in November only rose 0.3%. The consensus expectation was for a 0.8% gain with some economists projecting sales to jump by as much as 1.5%.

The mainstream blamed continuing shortages and suggested that rising prices might be cramping consumers’ wallets.

“Stubbornly higher prices — which consumers had shrugged off in recent months — are finally taking a toll on household budgets,” one economist told the Washington Post. “While grocery stores still did a booming business, it is telling that furniture and home furnishings sales were stagnant, and electronics and appliance stores saw sales plummet.”

In other words, the small rise in retail sales was due primarily to consumers paying more for gas and food. Meanwhile, they’re buying less stuff. This is particularly troubling considering November typically kicks off the holiday spending season. But sales sagged in in key holiday categories you would expect to show strong sales. Department store sales dropped 5.4%. Electronics and appliance stores saw sales decline 4.6%.

Peter Schiff summed up the retail landscape in a tweet.

Nov. retail sales rose just .3%, well below the .8% that was expected. Since prices are rising much more than that, consumers actually bought less, but paid more. This trend will continue until average American families spend almost all of their income on rent, food, and energy!

— Peter Schiff (@PeterSchiff) December 15, 2021

Schiff makes an important point. Retail sales aren’t inflation-adjusted. The data reflects the amount of money consumers paid. It doesn’t tell us anything about how much stuff they bought. The retail sales figure is as much an inflation indicator as it is a sign of buying patterns.

An example makes this clear.

If consumers buy 100 units of stuff in a month at $1 per widget, and the next month, they only buy 75 units of stuff, but the price inflates to $2 per widget, retail would surge by a whopping 50%. But consumers only bought 75 units of stuff — a 25% decline. The number of actual units sold fell even while dollar sales went up.

This isn’t a sign of economic strength. It’s just inflation. As Schiff said, consumers are buying less, but they’re paying more.

The CPI rose by 0.8% in November. These rapidly rising prices are certainly factoring into the retail sales numbers and plumping them up. The fact that retail sales charted a much smaller rise than expected despite sizzling hot inflation doesn’t bode well.

Meanwhile, Americans are putting a lot of their spending on plastic. As retail sales surged by 1.7% in October, consumer debt grew by $16.9 billion, an annual increase of 4.6%. Revolving credit, made up mostly of credit card debt, increased by $6.5 billion in October. That represents a 7.8% year-on-year increase. US consumers racked up $23.6 billion in credit card debt in the third quarter alone. According to Wallet Hub, that’s 46% above the post-Great Recession Q3 average. Americans now owe nearly $1.02 trillion in credit card bills.

It could be that Americans are running up their credit cards because they’re confident in the economy, as the mainstream narrative claims. But it could also be that they don’t have any choice. After all, you have to buy groceries and gas. This is where we’re seeing retail sales growth. If Americans don’t have enough cash to pay the higher prices, they have to charge it.

As Peter Schiff explained it, “Higher prices and an absence of stimulus checks forced Americans to borrow more to buy stuff they can’t afford.”

Clearly, this isn’t a sustainable economic model.

One has to wonder how this debt-fueled economy facing a runaway inflation train will respond if the Fed raises rates in an attempt (however feckless) to stop that train.