Americans Keep Spending Money Despite High Prices

U.S. retail sales grew more than expected in September, as consumer demand shows no signs of drying up three years into the inflation crisis. According to advance estimates from the U.S. Census Bureau, total retail and food services sales - including spending at stores, online and in restaurants - amounted to $714.4 billion in September, up 0.4 percent from the previous month and a clear acceleration from the 0.1 percent gain in August. Total sales for the July 2024 through September 2024 period were up 2.3 percent compared to last year, indicating that the U.S. economy is nowhere near a recession. After all, consumer spending - of which retail sales represent a sizeable chunk - accounts for roughly 70 percent of GDP and as long as consumers keep spending money, things can't really go awry.

Considering that consumer prices grew by 0.2 percent in September, retail sales outpaced inflation last month, meaning that consumers actually spent more than they did in August, even adjusted for inflation. Compared to September 2023, retail sales grew 1.9 percent last month and declined by 0.5 percent when measured in constant 1982-1984 dollars.

As the following chart shows, virtually all of the increase in retail sales over the past three years can be attributed to rising prices, as shoppers have spent more bucks for the same bang. Between September 2021 and 2024, monthly retail and food services sales (adjusted for seasonal variations, holiday and trading day differences) have increased by 15.1 percent. Adjusted for CPI inflation, sales have almost flatlined over the past three years, increasing by just 0.2 percent over the 36-month period. That in itself is remarkable, however, as it means that consumers have kept their buying behavior roughly the same despite surging prices.