MNI REALITY CHECK: US August Sales Fall on Storms, Covid Surge

The pace of retail sales slipped again in August as the spread of the Delta variant of Covid-19 eroded consumer confidence and severe storms capped mobility in parts of the country, industry experts told MNI.

"It will be an important release," to determine the impact that surging Covid cases and things like school reopenings will have on spending in the near term, said Jack Kleinhenz, chief economist at the National Retail Federation.

"We are all wondering about the degree to which the Delta variant has affected household behavior," he added. "That's probably on the forefront of everybody's mind."

Kleinhenz said he expects there was some deceleration in sales growth through August, with the effects of fiscal support granted earlier this year "tapering off." That has and will continue to "certainly reduce the potential for spending," he said. Federal unemployment insurance programs authorized under the CARES Act officially expired last weekend, which should curb spending power in coming months.

Soaring goods prices also damped confidence through the month, Kleinhenz said, as lower-income individuals are typically not as likely as middle- or higher-income consumers to tolerate higher prices.

But that should still translate into higher sales receipts. The cost of things like food, gasoline, and clothing rose significantly in August, the Bureau of Labor Statistics said Tuesday, and should help offset some weakness in vehicle and furniture store sales, Kleinhenz added.

VEHICLE SALES SOFTEN

Sales of new vehicles slowed again in August, dipping to a seasonally adjusted annual rate of 13.1 million, a substantial decline compared to July's SAAR of nearly 15 million, said Kayla Reynolds, manager of economic and industry insights at Cox Automotive, the Atlanta-based parent company of online vehicle retailers Autotrader and Kelley Blue Book.

"The biggest thing that's been holding dealers and profits back is inventory," she said. That's been primarily driven by a shortage of microchips needed to manufacture new cars, though staggered factory shutdowns and affordability have also been weighing on sales in recent months.

Surging prices of new vehicles due to inventory constraints have driven many buyers to the used market, where inventory has also tightened, Reynolds said. That's caused prices in both markets to spike, shrinking the pool of consumers who are able to afford a vehicle at all.

The average list price of a new vehicle last month rose to a record USD42,450, according to data from Cox, up 10% from one year ago. The list price of a used vehicle shot up to USD25,708, 25% higher than la year ago.

Gas prices, meanwhile, were also up in August, although they plateaued toward the middle of the month, said Patrick De Haan, head of petroleum analysis at Gasbuddy.

Severe storms impacted refinery production in some areas, he said, putting upward pressure on prices. But extreme flooding severely restricted mobility in major metro areas like New York City and Philadelphia, he added, curbing demand and likely weakening overall gas station sales.

Headline retail sales are expected to fall 0.7% after July's 1.1% decline, according to Bloomberg. Excluding vehicle sales, retail sales should dip 0.1% after falling 0.4% in July, while sales excluding vehicle and gas station sales should remain unchanged. Control group sales are also set to be unchanged in August, according to Bloomberg, following a 1% drop in July.