Americans keep spending

A surge in consumer prices is putting pressure on household budgets, derailing confidence in the economy and weighing on President Biden’s approval rating — but it’s not stopping Americans from a shopping spree as the holidays approach.

Retail sales jumped for the third consecutive month in October, according to data released Tuesday by the Census Bureau, rising 1.7 percent on the month and beating analysts’ expectations. While those figures are not adjusted for price changes, Americans are spending freely on a wide range of nonessential goods still in high demand and short supply.

“Today’s data suggest that spending momentum has reaccelerated heading into the holiday season, in line with reduced virus fear and strengthening job creation,” wrote Lydia Bossour of Oxford Economics in a Tuesday analysis.

“An improving health situation amid vaccination progress should support consumers’ willingness to spend heading into 2022.”

While October is a historically strong month for retail sales thanks to the combination of Halloween and the impending arrival of the winter holidays, sales rose across almost every industry tracked by the Census Bureau.

Sales by online retailers rose 4 percent last month after falling by 0.8 percent in September, while sales by big box stores rose by 2.8 percent for the second consecutive month. Sporting goods and hobby stores also saw sales rise 1.5 percent.

Some of the biggest gains came in sectors hit hardest by supply chain issues.

Electronics and appliance stores, which have struggled amid the global chip shortage, saw sales bounce back by 3.8 percent after falling in the previous month. Motor vehicle dealers saw sales rise 1.8 percent in October despite surging costs for both new and used cars.

“An improving Covid situation, easing supply constraints in the auto sector and an early start to holiday shopping all boosted purchases last month. Households were still willing to open their wallets in the face of higher prices,” Bossour wrote.

The steady gains in consumer spending — particularly on nonessential purchases — is a stark contrast from public opinion about the economy in general.

Economists say the U.S. has made solid progress shaking off the blow of the delta variant, which slowed job growth, diverted business away from the service sector and set back school openings shortly after it emerged this summer. Financial markets have also continued to rally in the face of inflation, and corporate profits have remained high despite the sharp rise in prices.

But rising inflation has demolished consumer confidence in the economy, according to the University of Michigan Survey of Consumer Sentiment. Michigan’s index of consumer sentiment fell to 66.8 in November, the lowest point since 2011 and far below the previous pandemic nadir of 71.8 set in April 2020.

“Consumer sentiment fell in early November to its lowest level in a decade due to an escalating inflation rate and the growing belief among consumers that no effective policies have yet been developed to reduce the damage from surging inflation,” wrote University of Michigan professor Richard Curtin, who leads the survey.

Curtin said 25 percent of respondents said inflation diminished their quality of life in November, with most complaints coming from lower income and older consumers. Households with low or fixed incomes often experience more hardship from rising prices, particularly for food and energy.

“The reactions of consumers to surging inflation should be no surprise,” Curtin said. “Economic policies counted on a quick and automatic self-correction to supply and labor shortages. Instead, the pandemic caused economic dislocation unlike any prior recession.”

While the Biden administration has scrambled to clear up supply lines and help struggling industries hire enough workers to meet demand, economists say there is little the president can do on his own to tame a global problem driven largely by the pandemic.

But Biden and Democrats have nonetheless taken intense heat from voters and Republican lawmakers, who’ve sought to blame the global rise in prices on their $1.9 trillion March stimulus bill. High inflation is one of several factors Republicans credit for Gov.-elect Glenn Youngkin’s (R) victory in the Virginia gubernatorial race and one of their leading pitches heading into the midterm elections.

Views on the economy are far more correlated to partisanship now than in previous eras, Curtin said. That explains why some Americans see a recovering economy under Biden as worse than a decimated economy under former President Trump, but also why some Democrats can brush off inflation.

“Partisan supporters of one or the other presidents either mentioned or ignored rising home and stock values, inflation and income growth rates, or mentioned or ignored employment or unemployment rates,” Curtin said. He added that political differences in opinion were bigger than differences across income, age and education.

And while inflation poses the biggest threat to those with the least financial flexibility, researchers from the JPMorgan Chase Research Institute found that low-income households were still able to keep more cash available on hand than they were before the pandemic. 

The typical low-income family had 70 percent more cash on hand than in 2019, according to the bank’s research, due to a combination of expanded child tax credit (CTC) payments and the lingering impact of pandemic stimulus.

“A cash buffer of $1,000 is a substantial increase but by no means a thick security blanket for low-income families,” wrote JPMorgan Chase’s Fiona Creig, Erica Deadman and Tanya Sonthalia.

“That said, in addition to CTC payments, wage growth among the employed, student loan and mortgage forbearance, rent relief, and spending cuts among jobless workers who have lost UI benefits may all be continuing to sustain cash balances.”