Strong Pull Persists

Yesterday the Census Bureau reported, “Advance estimates of U.S. retail and food services sales for May 2024, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $703.1 billion, up 0.1 percent (±0.4 percent)* from the previous month, and up 2.3 percent (±0.5 percent) above May 2023. Total sales for the March 2024 through May 2024 period were up 2.9 percent (±0.5 percent) from the same period a year ago.”

Despite all those ups, media reaction was decidedly down. For example, CNBC reported, “Retail spending was weaker than expected in May as consumers continued to wrestle with stubbornly higher levels of inflation.” (More and more.)

These judgments can be prone to the narcissism of small differences, but I perceive that, instead, retail spending continues its strong post-pandemic pattern. Please see first chart below. The retail sales growth rate has certainly — helpfully — slowed. But in May 2024 retail sales were $609,474 million compared to $449,524 million in May 2019. That’s better than a quarter higher. (In 2023, the average rate of inflation was 4.1 percent. In 2022, the average rate of inflation was eight percent. In 2021, the average rate of inflation was 4.7 percent. In 2020, the average rate of inflation was 1.2 percent.) Since 2019 American’s “real” retail purchases are at least seven percent higher despite “wrestling” with higher levels of inflation.

Maybe wrestling makes us hungry. Last month Americans spent about one-quarter more on groceries than in May 2019, despite many months of reduced inflationary impacts on food prices. (See second chart below). Inflation is pernicious in all sorts of ways. Inflation certainly undercuts the value of the money we have to spend. But for more affluent consumers there is some accumulating evidence that inflation masks — facilitates — self-accelerated spending too.

In any case, the supply chain capacity deployed to fulfill increased post-pandemic demand has demonstrated adaptability and sustainability, especially given the still stubbornly reduced retail inventories to sales ratio. Just-in-Time is even more pronounced (as further signaled by another better-than-nine-percent sales increase for “non-store retailers”, here and here). Pull persists shaping the volumes and velocities of push.