Consumers spent more in October — but because they were paying more, not buying more.
Higher prices continued to bite into retail, just as the holiday shopping season kicked off.
The Census Bureau said October retail and food service sales jumped 8.3 percent from a year earlier — a time period when prices on goods increased 7.7 percent, erasing almost all of the month’s overall sales gains.
Seasonally adjusted prices increased 1.3 percent from September to October, considerably faster than the 0.9 percent rise economists projected.
The month’s gains did not carry through as strongly in fashion.
Apparel and accessories specialty stores saw October sales inch up 3.1 percent from a year earlier while department stores logged a 1.6 percent decline.
But with prices on apparel, footwear and accessories up a collective 4.1 percent in October, the fashion industry is essentially being overcome by inflation and many retailers are cutting prices to move inventory they ordered amid the COVID-19 induced supply chain backups.
Prices on food and fuel, in particular, have risen in the wake of Russia’s war in Ukraine and are eating into spending in other categories.
Both sides of the equation could be seen in Walmart Inc.’s third-quarter results this week, which showed gains in grocery sales, but softness in apparel.
On balance, though, the discount giant is drawing in more higher-income shoppers as times get tough.
“Regardless of income, families are more price conscious now,” said Doug McMillon, Walmart’s president and chief executive officer, on a call with analysts. “Living with higher prices this year has had a cumulative impact on our customers.”
“In the latter weeks of the quarter, sales and profit trends softened meaningfully, with guests’ shopping behavior increasingly impacted by inflation, rising interest rates and economic uncertainty,” Cornell said. “This resulted in a third-quarter profit performance well below our expectations.”
Even so, that shoppers are able to keep paying the higher prices says something — about consumer resiliency and how difficult it might be for the Federal Reserve to cool off an overheating economy with higher interest rates.
Stephen Stanley, chief economist at Amherst Pierpont Securities, said: “Households are still sitting on a huge pile of pandemic-era excess liquidity. They have begun to draw from that cushion, but it is far from depleted, and today’s data provide a reminder that, while the consumer has not been posting vigorous real growth in recent quarters, a contraction in expenditures in the near future is quite unlikely.”
While hope springs eternal for the holiday season, it could be hard for merchants to gain traction.
Neil Saunders, managing director of GlobalData, said: “The worrying thing about the softening of demand in October is that it coincides with a period of more elevated activity from retailers. This included an early firing of the gun on Black Friday deals, including from Amazon with its Early Access Prime Day. While the discounting likely helped sales somewhat, it clearly hasn’t acted as a major stimulant for consumers. If this pattern holds for the remainder of the holiday season, retailers may end up giving away a lot of margin simply to generate meager gains. This will have a chilling impact on the bottom line.”