US: Mixed Consumption, Pressure on Wages and Inflation

The retail sales report for August 2021 blew past expectations of falling -0.8% and instead rose +0.7% to a 15% y/y increase. Gains were widespread across industries with the notable exception of autos which fell for the fourth consecutive month, losing -3.6% m/m and driving the y/y rate to +10.3%.

While that would normally be a terrific number, it was 107% in April. There aren’t enough cars to buy as the global chip shortage continues to weigh on auto manufacturing. Total retail sales excluding autos, therefore, looked even better, rising 1.8% m/m to a 16% y/y rate. It’s a strong report.

But it’s not telling the whole story at all.  First, July retail sales were revised down sharply from -1.1% to -1.8%, and that puts total retail sales below the level from May.

In fact, over the past three months, retail sales have fallen at an annualized rate of -2.9%. From that perspective, retail sales are losing ground. It is an admittedly volatile calculation, but it does capture the most recent movements.

Furthermore, recent higher inflation has exaggerated the gains in retail sales. Normally retail sales are reported on a nominal basis, that is the actual dollar amount because that’s the world retailers live in. Those sales include not only the number of goods (let’s call them widgets) but the price of the widgets as well. 

However, if we strip out the price component, inflation, we get the actual volume of widgets sold, and what’s known as “real” retail sales. And on that basis, the picture is not as rosy, since real retail sales are only growing 9.4% y/y compared to nominal sales of 15%. To be sure, 9.4% is terrific, but it’s less than the 15% which has been pumped up by inflation.

As noted, the lack of labor is now putting significant pressure on wages. The National Federation of Independent Business (NFIB) survey clearly demonstrates how compelling and pervasive this upward force on wages is.

The net percentage of respondents who have already raised compensation is at a record high, while the net percentage of respondents who plan to raise wages is just off of last month’s record high.