These retail sales support solid growth in “real” GDP and inflation-adjusted consumer spending, given falling prices for goods sold by retailers

Our drunken sailors have no desire to slow down. Massive waves of migration also boost retail sales.

By Wolf Richter for WOLF STREET.

Our Drunken Sailors, as we have affectionately and jokingly called them for over a year, the pillars of the U.S. economy, are still at it and spending money at retail. Retail sales rose a seasonally adjusted 1.0% in July from June, the largest monthly increase since January 2023. Year-over-year, not seasonally adjusted, retail sales rose 4.0% to $724 billion.

To see the trend beyond the monthly fluctuations, we look at the three-month average, which includes all revisions. It rose 0.3% in July from June and 2.4% year-on-year.

The big winner was e-commerce – the second largest category after auto dealers, accounting for 17% of total retail sales: the three-month average rose 1.0% in July over June and was 7.4% year-over-year! This is where much of the growth in retail sales is occurring. E-commerce sales are expected to surpass auto dealers' in a year or two.

Sharp declines in the prices of goods are further increasing these retail sales.

In the chart above, the sharp increases in retail sales in 2021 and 2022 are due to massive price increases in the goods sold by retailers. This includes new and used cars, which account for 19% of total retail sales.

These price spikes began to taper off in late 2022, with prices heading downward in many categories. Grocery is one of the exceptions. Gasoline prices have fallen sharply. Prices of durable goods, including automobiles, have been on a historic downward spiral since the crazy spike during the pandemic. The consumer price index for durable goods has fallen 6% since its peak two years ago. Used car prices have fallen 19%. New car prices have fallen 2%. Consumer electronics, appliances, furniture, sporting goods, etc. have all seen price declines.

Adjusted for these price declines in goods – i.e. adjusted for inflation – retail sales look even better. These price declines should have pushed retail sales in dollars down. But dollar sales rose despite The price falls as retailers sell more goods at lower prices.

And that will show up in inflation-adjusted consumer spending and GDP data. That kind of retail sales growth, despite falling pricessupports solid GDP growth.

Sales in the largest retail categories.

Sales to new and used car dealers and spare parts dealers, the largest category at 19% of total retail sales, partially recovered in July from the chaos in June following the CDK hack that put thousands of merchants on hold. And so the three-month average in July rose 0.4% from June's depressed level.

But the three-month averages for July and June — both of which include the drastic impact of June's CDK hack — were lower than May. The relatively stagnant dollar sales over the past 18 months are due to falling prices despite rising retail sales. All figures are based on three-month averages, seasonally adjusted:

• Sales: 132 billion US dollars
• Compared to the previous month: +0.4%
• Year-on-year: -0.5%

The increase in dollar sales in 2021 and 2022 was due to price gouging by dealers and automakers, even as sales plummeted due to vehicle shortages. This price gouging has been reversed since mid-2023:

E-commerce and other “non-store retailers” (17% of total retail), including e-commerce retailers, brick-and-mortar retail e-commerce activities, and stalls and markets, three-month averages:

• Sales: 122 billion US dollars
• Compared to the previous month: +1.0%
• Year-on-year: +7.4%

gastronomy (the third largest category, 13% of total retail) includes everything from cafeterias to restaurants and bars.

Sales have been essentially flat all year, but if you watch your tongue properly, you can see the slowdown at the beginning of this year and then the slow growth from the low point over the last four months:

1. Sales: 95 billion US dollars
2. Compared to the previous month: +0.2%
3. Year-on-year: +4.1%

Food and beverage stores (12% of total retail). In general, only price increases and population growth increase sales.

After a massive increase in early 2023, prices have almost stabilized at a very high level. In July, the domestic consumer price index for food remained roughly unchanged compared to January, only 1.1% higher than the previous year.

Yet the population has been growing rapidly: The Congressional Budget Office, using ICE and census data, estimated that the U.S. population grew by 6 million people in 2022 and 2023, almost entirely due to waves of migrants coming in. These people are working (nonfarm employment is rising) or looking for work (which is driving up the unemployment rate), and they are buying things, including at food and beverage stores, which is driving up their retail sales, which we can see here (three-month averages):

• Sales: 83 billion US dollars
• Compared to the previous month: +0.4%
• Year-on-year: +2.3%

General stores, excluding department stores (9% of total retail). These stores are also places where the 6 million additional US citizens buy their essential goods, such as groceries at Walmart, which has announced price reductions on many items.

• Sales: 65 billion US dollars
• Compared to the previous month: +0.3%
• Year-on-year: +3.3%

Petrol stations (8% of total retail sales). Dollar sales at gas stations are moving almost in lockstep with the price of gasoline. The price of gasoline plummeted from the peak of the increase in June 2022, but has roughly stabilized over the past 12 months:

• Sales: 53 billion US dollars
• Compared to the previous month: -1.3%
• Year-on-year: +0.9%

Billions of dollars in sales at gas stations, including other goods sold at gas stations (red, left axis); and the consumer price index for gasoline (blue, right axis):

Building materials, garden supplies and equipment stores (6% of total retail). The pre-pandemic trend line in blue. Home Depot complained about it the other day. The incredible remodeling boom started to fizzle out in late 2022.

• Sales: 41 billion US dollars
• Compared to the previous month: +0.6%
• Year-on-year: -1.5%

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