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Rising prices flatter U.S. retail sales, demand for goods remains strong
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People shop for clothes at a Target retail chain in Westbury, New York, the U.S., May 20, 2021. /Reuters

People shop for clothes at a Target retail chain in Westbury, New York, the U.S., May 20, 2021. /Reuters

U.S. retail sales unexpectedly rose in September as more expensive motor vehicles boosted receipts at auto dealerships. There are however fears that supply constraints could disrupt amid the holiday shopping season with continued shortages of goods.

Given the partial lift from inflation, the surprise increase in retail sales reported by the Commerce Department on Friday, did little to change economists' expectations that consumer spending probably stalled in the third quarter. Inflation-adjusted sales which rose moderately last month, are what is included in the calculation of gross domestic product.

"The solid retail sales report reflects both consumer resilience and escalating prices," said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto. "The main concern now is that supply-chain disruptions and microchip shortages appear to be spreading, limiting selection and tamping down goods demand."

Retail sales increased by 0.7 percent last month. August's data was revised higher, showing that retail sales were increasing by 0.9 percent instead of 0.7 percent as previously reported. Economists polled by Reuters had forecasted that retail sales would slip by 0.2 percent. Consumer prices increased by 0.4 percent on a monthly basis in September, suggesting that the real retail sales rose by 0.3 percent last month.

An ongoing global shortage of microchips is forcing automakers to cut production, leading to a scarcity of inventory at showrooms, which then boosts prices. The semiconductor shortage has also impacted the supply of electronics and appliances. Congestion at ports (due to a dearth of workers) has also resulted in fewer goods on shelves heading into the holiday shopping season thus limiting choices for buyers.

U.S. President Joe Biden on Wednesday announced that the Port of Los Angeles would join the Port of Long Beach, two of the country's busiest, in expanding round-the-clock operations to unload an estimated 500,000 containers on cargo ships offshore.

Spending has shifted to goods from services over the course of the COVID-19 pandemic, straining the supply chains. The rotation back to services, such as travel and dining out, has been slowed by a resurgence in corona-virus infections over the summer, driven by the Delta variant.

Retail sales are mostly made up of services including healthcare, education and hotel accommodation, making up the remaining portion of consumer spending.

Economists have expected consumers to start their holiday shopping early to avoid empty shelves, which would probably keep retail sales higher in October. Spending remains strong despite the consumer sentiment decreasing, thanks to strong household wealth and rising wages from a tightening labor market.

A survey from the University of Michigan on Friday showed consumer sentiment slipped further in early October due to the endless pandemic and the political wrangling in Washington over raising the federal government debt limit as well as additional spending for infrastructure and social programs.

"Strength this month and next could be a result of well-telegraphed supply shortages leading consumers to begin holiday-season shopping earlier than usual," said Veronica Clark, an economist at Citigroup in New York. "This effect, as well as potentially binding supply limitations, could subsequently result in a drop in retail sales in November and December."

Retailers are cautiously optimistic that shortages will not derail the holiday season.

"We have seen record imports this year and are confident that collectively we can work through these challenges to ensure a healthy and happy holiday season," said Matthew Shay, president of the National Retail Federation in Washington.

Stocks on Wall Street were trading higher, The dollar dipped against a basket of currencies and The U.S. Treasury prices fell.

Source(s): Reuters

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