Daily Brief: US Retail Sales Are On The Up, But The Recovery’s About More Than Just Shopping

Daily Brief: US Retail Sales Are On The Up, But The Recovery’s About More Than Just Shopping

over 2 years ago3 mins

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Data out on Thursday showed US retail sales unexpectedly rose in August, thanks in large part to an A+ effort from back-to-school shopping.

What does this mean?

Retail sales climbed 0.7% last month compared to the same time last year, which was a far cry from the 0.7% drop analysts were expecting. And they’d have been even higher – 1.1% higher to be precise – if not for anemic car sales. There were a couple of reasons they were so strong: the spread of the Delta variant, for one, has put people off taking vacations, leaving them with more money to spend elsewhere. And then there was the $15 billion the government has spent supporting parents, which will have come in real handy for August’s back-to-school shopping season.

Retail sales
Source: The Wall Street Journal

But there’s a problem: restaurant and bar sales didn’t rise in August, which suggests there are still gaping holes in this economic recovery. Goldman Sachs, then, might’ve been right earlier this month when it slashed its forecast for US economic growth from 6% to 5.7%.

Goldman Sachs

Why should I care?

For markets: We’re on dangerous turf.

Between Delta-induced uncertainty, China’s manufacturing difficulties, and the high prices of labor and materials, American companies aren’t exactly on stable ground either. In fact, most of their stocks have fallen more often than they’ve risen in the last few months – something analysts see as a clear sign of a weakening market.

For you personally: What goes around…

The last thing American companies need to contend with is higher taxes, but higher taxes might be exactly what they’re going to get: the US government took a step toward approving tax hikes on Wednesday, with a view to make an extra $2.1 trillion in revenue. Good for the government, sure, but not necessarily so good for companies, investors, or shoppers: businesses will either have to accept lower profits, or they’ll need to make up the shortfall by raising prices on you.

European Car Sales Have Been Suffering Through Summer

Cars image

Data out on Thursday showed European car sales dropped off a cliff this summer.

What does this mean?

The great chip shortage has been slowing production in all sorts of industries, but carmakers have been hit particularly hard. After all, they generally use less expensive and less profitable chips than, say, Big Tech, which has sent them to the bottom of a very long priority list. That means they haven’t been producing new cars nearly quickly enough to meet demand: they sold 24% fewer cars in July and 18% fewer in August than the same periods the year before. The shortage isn’t going away anytime soon either: German car giants Volkswagen, Daimler, and BMW have all warned that production shortages will probably last well into 2022.

Car sales
Source: Bloomberg

Why should I care?

For markets: At least there’s a workaround.

Still, shrewd car manufacturers have found a way to power through: they’ve been raising prices and upping production of their more profitable models. That might be why Ford and Toyota both posted stronger-than-expected results last quarter, as well as why investors are still so confident in them: their stocks are up 55% and 25% respectively this year.

Profit margins

The bigger picture: Cue the cost cuts.

Missing chips aren’t the only thing threatening car production, mind you: Europe’s record-high energy prices are poised to push up manufacturing costs, which could force carmakers to close factories in an effort to save money. They wouldn’t be the first: fertilizer producer CF Industries Holdings announced on Wednesday that it’s shutting down two of its plants.

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