“Sizzling” Retail Sales Numbers Inflated by Eroding Dollar

If you saw the headlines about the latest retail sales figures, you probably noticed adjectives like “hot,” “booming” and “sizzling.” Total retail sales including food services were up 5.9% year-on-year in May.

That’s an impressive number until you factor in inflation. In fact, a decline in the dollar’s purchasing power accounted for nearly half the gains in retail sales.

Typical of the mainstream financial press, the Wall Street Journal gushed over the May retail sales numbers.

The report suggests low unemployment, rising wages, and tax cuts are prodding Americans to spend. That, in turn, is boosting merchants’ sales while stoking stronger growth in the world’s largest economy.”

But as we reported earlier this week, we have an incredibly shrinking dollar. Over the last 12 months, the purchasing power of the greenback has dropped at the fastest rate since 2011. According to the latest data released by the Bureau of Labor and Statistics, the Consumer Price Index (CPI) jumped by 2.8% year-over-year in May. That follows on the heels of a 2.5% leap year-over-year in April. This precipitous climb in CPI means you pay more for less. The purchasing power of the dollar fell 2.93% in May from a year ago, the fastest drop since November 2011.

In other words, part of the reason consumers are spending more is because their dollars are buying less.

If you adjust retail sales for inflation, the number sounds a little less sizzling. “Real” retail sales, including food services, rose only 3.1% in May from a year ago. According to Wolf Street, this is closer to the middle of the range over the past few years, and “a lot less to gush about.”

The difference between the retail sales increase of 5.9% (not adjusted for inflation) and the ‘real’ retail sales increase of 3.1% (adjusted for inflation) is the loss of the purchasing power of the dollar — which accounts for nearly half of the increase in retail sales. It just takes a lot more dollars to buy the same thing.”

Most of the mainstream pundits failed to make this connection, or simply ignored it, but there were some exceptions. Fox News admitted consumers may not be able to maintain this spending pace because inflation is cutting into their paychecks. Its story also noted shoppers are cutting into saving in order to spend.

Americans may not be able to maintain that spending pace. Inflation, led by pricier fuel, has picked up, leaving most Americans with paychecks that, adjusted for inflation, haven’t increased in the past year. Many have dipped into savings. The US saving rate slipped to 3.1% in the first three months of the year, down from 3.9% a year earlier and 4.9% in 2016.”

That’s just another way of saying the purchasing power of the dollar is eroding even as consumers dip into savings to maintain their spending.

Inflation is a boogeyman lurking in the shadows of the economy. And as Peter Schiff noted in his most recent podcast, it isn’t going anywhere anytime soon. In fact, the Federal Reserve is likely pushing us toward a no-growth, high-inflation economy.

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