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Falling commodity prices put pressure on retail sales (as inflation shifted massively to services)

Unseasonally adjusted, and despite price declines, total retail and e-commerce sales broke records.

By Wolf Richter for WOLF STREET.

The headlines are saying things like, “Retail sales down the most in a year”, but what they don’t say is that prices for goods – which is what retailers sell – fell in December, with inflation moving massively towards services, which are not included in retail sales. In the biggest retail categories like motor vehicles and gasoline, and even some smaller categories like marijuana, prices have dropped sharply.

In December, retail sales were down 1.1% from November, while nondurable goods prices (dominated by food and gasoline) were down 1.2%; and the prices of durable goods (new and used vehicles, appliances, furniture, electronics, etc.) dropped 0.8%, the fourth consecutive month of declines. It is these declines in the prices of goods that are largely responsible for reducing retail sales.

On the other hand, consumer spending that goes into “real” GDP is adjusted for price changes and will show that consumers are dragging their feet, spending a little less on goods perhaps, but more on services.

When retailers raise prices, their revenues increase and they don’t even have to sell more; and we saw this during the rise in goods inflation in early 2022. That’s why businesses love inflation.

And when retailers cut those high prices because they’re losing sales to competitors – as consumers suddenly refuse to pay anything more than minuscule prices and switch brands and products – then revenues drop, which is happening now.

The CPI for nondurable goods – dominated by food and gasoline – was down 1.2% in December and down 3% from its June peak, as gasoline prices fell 3.6% on the month and food price increases eased to just 0. 2%, the slowest month for monthly increase since March 2021.

Cannabis prices are falling (-13% Q3 year-over-year, according to the BDSA, which covers the New York cannabis market), due to increased supply from states where recreational cannabis is now legal, outpacing to strong demand. Cannabis prices are not yet tracked by the CPI. But today’s retail sales include sales at Cannabis stores in the “Sundries Store” category, and we’ll get to that in a moment.

The CPI of durable goods – new and used vehicles, appliances, furniture, electronics, etc. – fell by 0.8% in December compared to October and fell by 2.5% with the drop in prices of electronics and used vehicles [see: Hangover Time for Used-Vehicle Dealers. For Buyers, Patience Will Pay Off]:

Price declines brought down retail sales.

Seasonally adjusted, total retail sales fell 1.1% in December from November, the second straight month of declines, to $677 billion, up 6.7% from a year earlier. Compared to December 2019 before the pandemic, retail sales increased by 29% (red).

But without seasonal adjustment, retail sales jumped to a record $749 billion in December (purple).

Dealers of new and used parts and vehicles, accounting for nearly 20% of total retail: Sales were down 1.2% in December from November to $124 billion, seasonally adjusted, and down 1% year-over-year due to the sharp drop in retail prices. used vehicles and new vehicle prices, which caused the CPI of new and used vehicles to decline 1% on the month and 3.3% from its September peak:

This is the CPI for new and used vehicles:

And retail sales at new and used car dealerships:

E-commerce and other “storeless retailers”: Sales fell a seasonally adjusted 1.1% in December from a record high in November to $109 billion, but were up 14% year-on-year and 66% from three years ago (red line).

Unseasonably adjusted (purple), sales surged 9% for the month to a new record high of $135 billion as the shift in sales from brick-and-mortar stores to e-commerce continued relentlessly.

Included in these sales are brick-and-mortar retailers’ e-commerce operations, including used vehicle dealer e-commerce sales and sales by stalls and markets:

Food services and drinking places:

  • Sales: $88 billion, seasonally adjusted
  • Month to month: -0.9%
  • Year on year: +13.9%
  • Since December 2019: +31.9%
  • CPI for “eating out”: +0.4% month-on-month, +8.3% year-over-year:

Food and beverage stores:

  • Sales: $81 billion, seasonally adjusted
  • Month to month: 0%
  • Year on year: +6.7%
  • As of December 2019: +26%
  • CPI for “Food at Home”: +0.2% month-on-month, +11.8% year-over-year:

Gas station:

  • Sales: $60 billion, seasonally adjusted
  • Month to month: -4.6%
  • Year on year: +6.6%
  • Since December 2019: +34%
  • “Gasoline” CPI: +0.2% in the month; 11.8% year on year:

Here’s the CPI for gasoline, down 34% from June:

These are retail sales at gas stations, which are generally more like convenience stores and include all the other things gas stations sell:

General merchandise stores, not department stores:

  • Sales: $59 billion, seasonally adjusted
  • Month to month: +0.2%
  • Year on year: +3.9%
  • Since December 2019: +19.1%

Building materials, gardening and equipment stores:

  • Sales: $42 billion, seasonally adjusted
  • Month to month: +0.3%
  • Year on year: +2.6%
  • As of December 2019: +33%

Clothing and accessories stores:

  • Sales: $26 billion, seasonally adjusted
  • Month to month: -0.3%
  • Year on year: +3.9%
  • As of December 2019: +15%

Miscellaneous store retailers (includes cannabis stores):

  • Sales: $14.8 billion, seasonally adjusted
  • Month over month: -1.1% – see note above on falling cannabis prices.
  • Year on year: +3.5%
  • As of December 2019: +33%

Furniture and homeware stores:

  • Sales: $11.5 billion, seasonally adjusted
  • Month to month: -2.5%
  • Year on year: +2.5%
  • As of December 2019: +15%

Dying department stores:

  • Sales: $10.2 billion, seasonally adjusted
  • Month to month: -6.6%
  • Year on year: -0.7%
  • As of December 2019: -7%

Since peaking in 2000, sales have dropped by 42%. Americans are increasingly buying these things online, including on the e-commerce sites of the few surviving department store chains.

In the early 1990s, department store sales accounted for about 10% of total retail sales. As of December 2022, its share has dropped to just 1.7%:

Sporting goods, hobbies, books and music stores:S

  • Sales: $9.3 billion, seasonally adjusted
  • Month to month: +0.1%
  • Year on year: +4.1%
  • Since December 2019: +39%

Electronics and home appliance stores:

Included here are only stores that specialize in electronics and appliances, such as Best Buy physical stores or Apple physical stores. It does not include sales of electronics and appliances online and at other retailers such as Walmart.

  • Sales: $7.0 billion, seasonally adjusted
  • Month to month: -1.1%
  • Year on year: -2.7%
  • As of December 2019: -7.1%
  • Consumer electronics CPI: -0.9% in the month; -11.8% year on year.
  • Devices CPI: +0.2% month, +1.1% year-over-year

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