#Economic Report: U.S. retail sales rise sharply, but customers are paying more due to high inflation

The government said sales rose in most major categories including auto dealers even though car purchases have slowed because of major production delays. Automakers can’t finish enough vehicles because of a global computer chip shortage.

Auto sales actually fell last month on an unadjusted basis, but the government’s seasonal-adjustment process turned a sizable decline into a small increase. Record-high prices probably also played a role in exaggerating auto-sales figures.

Yet even if autos are excluded, U.S. retail sales were still up 0.8% in the month.

Big picture: Americans have plenty of money to spend because of high savings, government stimulus and a tight labor market in which wages are rising sharply.

Figuring out what to spend the money on is a problem, though. The surge in coronavirus delta cases toward the end of the summer caused more people to spend less on services such as dining out, renting a hotel room or getting on a plane.

Yet many goods such as autos and consumer electronics are in short supply and that’s leading to sharply higher prices. Inflation in the U.S. is running at the fastest pace in 30 years.

Read: Inflation rises at 5.4% yearly pace, CPI shows, and stays at 30-year high

Also: High inflation to last awhile, Fed’s Bostic says, and it’s no longer ‘transitory’

The effect is to partly exaggerate the strength of consumer spending, the lifeblood of the U.S. economy.

“Higher prices for consumer goods have been acting to, well, inflate measured retail sales,” said chief economist Richard Moody of Regions Financial.

If a 0.4% increase in the consumer price index in September is subtracted, retail sales rose by a smaller 0.3% in the month.

Key details: Sales rose the most last month at stores that sell recreational items such as books, music and sporting goods. Receipts jumped 3.7%, perhaps because Americans trying to avoid delta entertained themselves more at home.

Sales also rose sharply at gas stations, apparel stores and groceries.

A sharp 1.8% increase in gas-station receipts reflected higher prices at the pump and isn’t good news for the economy.

An unusually big 0.7% increase in grocery sales, meanwhile, was driven in part by higher inflation. Food costs more.

Sales at restaurants rose a smaller 0.3% as customers took more precautions because of the delta variant of the virus.

The only categories to report lower sales in September were electronics outlets and health and personal care stores such as pharmacies, salons and barbers.

Still, retail sales have generally been strong this year and they are increasing a lot faster than inflation. They have climbed 14% in the past year vs. a 5.4% increase in the consumer price index during the same span.

Sales are likely to keep rising in the months ahead. Retailers are preparing for a strong holiday season and are rushing to stock up in a show of faith in consumers and the broader economic recovery.

Their biggest problem: getting enough products to stock shelves in time. The U.S. is experiencing massive shipping delays at major ports that are blocking businesses from getting critical goods and supplies.

What they are saying? “The solid retail sales report reflects both consumer resilience and escalating prices. The main concern now is that supply-chain disruptions and microchip shortages appear to be spreading,” said senior Sal Guatieri of BMO Capital Markets.

“Meantime, services demand is getting held back by labor shortages, notably in restaurants,” he added. “Demand isn’t the problem, supply is.”

Market reaction: The Dow Jones Industrial Average
DJIA,
+0.81%
and S&P 500
SPX,
+0.56%
rose in Friday trades.