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U.S. Retail Sales Fell and Inflation Reached a Higher Record in May

June 23 2021 04:04
Crane
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Retail Sales Fall Back

Data released by the U.S. Department of Commerce on the 15th showed that US retail sales fell 1.3% month on month in May, a drop that exceeded market expectations.

 

Data released on the same day showed that core retail sales in the United States fell 0.8% month on month in May after excluding more volatile categories such as automobiles, auto parts and gas stations. The US Department of Commerce also raised the retail sales data for April to an increase of 0.9% from the previous month.

 

Specifically, in the 13 major retail categories, retail sales of 8 categories experienced a month-on-month decline in May. Among them, due to chip shortages leading to insufficient car inventory and supply, retail sales of automobiles and parts fell 3.7% month on month; sales of furniture, electronic products, and building materials fell 2.1%, 3.4%, and 5.9% month on month, respectively; the online retail sales decreased 0.8% month on month.

 

In addition, with the increase in the COVID-19 vaccination rate, various states have relaxed economic restrictions, restaurant sales increased by 1.8%, and clothing sales rebounded by 3%, which reflects the increase in more companies returning to normal work and social activities.

 

Analysts believe that US retail sales in May fell sharply compared to the previous month, indicating that the fiscal measures introduced by the federal government are fading in the stimulus effect of increasing consumption. It also reflects that consumers have begun to cut commodity spending in the context of the relief of the pandemic, increase service spending instead.

 

The Inflation Battle will Continue

As the U.S. Department of Commerce raised its April retail sales data, US consumer spending is still expected to increase to boost economic growth in the second quarter of this year. However, the pent-up strong demand under the pandemic has exceeded supply. Under the environment of loose fiscal policy and ultra-loose monetary policy, inflationary pressure is affecting the stable recovery of the US economy.

 

Bill Adams, a senior analyst at PNC Financial Services, pointed out that “the root cause of inflation is short-term issues such as supply chain disruption, labor shortages, and stimulus plans. All these factors that drive inflation will no longer be a major issue in the second half of this year.”

 

According to a report released by the U.S. Department of Labor on the same day, the U.S. Producer Price Index rose by 0.6% month on month and 6.6% year on year in May. The year-on-year increase was the highest level since comparable data were available in November 2010. Data previously released by the Labor Department showed that the US consumer price index increased by 0.6% month-on-month and 5% year-on-year in May, the highest year-on-year increase since August 2008.

 

At the same time, the pandemic has forced some large US retailers to refine their inventory systems and logistics systems, allowing customers to skip the long delivery time and use "online purchases, in-store payment", curbside pickup or DoorDash or other Third-party delivery services such as Instacart personally pick up the orders they place online.

 

According to data from Goldman Sachs, in the fourth quarter of 2020, the online sales coverage of stores increased from 43% in the first quarter to approximately 60%. The investment bank also said that even if the economy reopens, due to efficiency and capacity constraints, many retailers may continue to adopt a hybrid model in the future.

 

The report said that retailers do not necessarily need to set up outlets in densely populated areas, but they can make better use of these outlets and mixed fulfillment trends.

 

Goldman Sachs found that Petco's (WOOF) in-store online sales coverage increased from 20% in the first quarter of 2020 to 80% in the fourth quarter. This momentum continues to rise this year. The company reported that in the first quarter of 2021, 83% of digital sales were done by stores.

 

Target (TGT), which also has stores in high-density areas, saw its in-store online sales increased by 5% to 85% from the first quarter to the fourth quarter. This change is smaller than that of Petco and other companies, but the bank pointed out that Target had accepted the “online purchase, in-store payment” and curbside pickup model long before the pandemic, and the same-day service growth rate in the first quarter of this year was still faster than the growth of overall online sales.