American retail sales for the month of November declined by a greater level than was previously forecast. Adjusted for inflation, all retail categories, save grocery and restaurants, experienced a net revenue decline for the month. Furniture, electronics, sporting goods, motor vehicles, appliances, building materials, health care, clothing; it was all firmly negative.
The only major subcategory of consumer spending to post an above-average increase in sales was grocery, up by 10.5% year over year, for the month of November. Grocery sales in November, totaling $64.48 billion US, represented 13.3% of total US retail spending. In November 2021, grocery sales accounted for 10.2% of total US retail spending. There has been a significant swing in favor of grocery spending and away from non essential purchases.
The inflationary effects of rising prices are forcing consumers to “choose” essentials over discretionary items, a continuation of a shift to spending needs rather than wants. This is not a surprise. What seems odd is that so few major analytical sources took the time to calculate gross consumer incomes, then strip out the increased costs of financing on households and finally determine that Americans would be forced to reduce spending in certain areas so as to continue to eat.
Institutional investors continue to be unprepared for the consumer spending shift. There are few pure grocery investments in the marketplace for large scale substitution to take place. Consequently, a certain “head-in-sand” approach is being adopted by many active portfolio managers: “there is little to be done, so as a result, we choose to do little“.
What is clear is that inflation should have a very negative impact upon retail profits in Q4. Christmas sales will, more likely than not, represent an after-inflation bust in 2022. As roughly 70% of US GDP is directly or indirectly tied to consumer spending, any broadly based downturn in consumer retail represents a clear portent about the likelihood of a more broadly based recession.
On a related note, Smart & Final, the discount grocery division of Grupo Chedraui, has firmed up its next location, Lompoc, for expansion in California. The newest location, in San Jose, officially opened on December 14th.
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