Economic Monitor – Weekly Commentary
by Eugenio Alemán
Online sales continue to grow, unabated
June 28, 2024
Retail trade sales in the U.S. are reported by distribution channel. For example, gasoline sales are reported through the gasoline stations distribution channel, although those gasoline stations’ sales also include everything else sold at gasoline station convenience stores, i.e., hot dogs, tobacco, sodas, gum, chips, coffee, etc. Furthermore, it is highly unlikely that sales at gasoline stations are going to be threatened by online sales, unless there is something we are missing regarding the need to fill up our tank every week! Nevertheless, gasoline sales as well as gasoline stations sales have remained depressed or at least have remained unchanged over the last few decades or so, perhaps because we continue to buy more efficient cars rather than because we are driving less. The increase in sales of EVs is probably another factor that has helped to increase miles per gallon and why sales of gasoline have not grown over the last several years1. At the same time, gasoline stations’ sales as a percentage of total retail trade sales have continued to lose ground as more efficient cars as well as EV have probably reduced the times Americans are using that distribution channel. Furthermore, gasoline stations, in general, make more profits from convenience stores’ sales than from the sale of gasoline so the reduction in traffic has continued to erode the ability of these gasoline stations to improve their bottom line.
However, other retail distribution channels have also seen something similar to what is happening to the gasoline station distribution channel, but for different reasons. This time it is not more efficient cars or EVs, which at this time do not use the gasoline distribution channel for charging. Most of the challenge faced by these other distribution channels continues to be online sales.
That is, some of these traditional distribution channels, like department stores, furniture stores, general merchandise stores, etc., have been losing ground over the years to the online business distribution channel as online sales have continued to make inroads.
The nonstore distribution channel, which was booming before the pandemic recession, got a further boost during the pandemic recession and has kept on adding sales as well as retail market participation. Nonstore retail sales as a percentage of total retail trade sales represented about 15% before the pandemic, but with the boost from the COVID-19 pandemic, they now represent about 22% of total retail trade sales, as shown by the graph below.
Some of the growth in this distribution channel is certainly coming from other distribution channels but it is also coming from retail trade sales growth. That is, not only is this distribution channel taking from other distribution channels, but it is also growing at a higher rate than the overall retail trade sector, as can be shown in the graph below by comparing the steepness in the nonstore retailers’ sales trend compared to the trend for the overall retail trade sector.
PCE Price Index in line with expectations
This morning’s release of the personal income and expenditure report for May, which included the rate of inflation favored by the Federal Reserve (Fed), the PCE price index, was good news for the Fed but probably not enough to change the institution’s current hawkish stance regarding inflation after the scare it got from the stronger than expected readings during the first quarter of the year.
Looking deeper into the segmentation for the PCE price index shows that the disinflationary environment still has legs, with goods prices in deflationary territory while services prices, although still relatively high, weakened a bit in May. Shelter costs are still keeping services inflation stronger than what everybody had been expecting but even in this sector there is better news coming our way as home prices have started to weaken again as housing inventories, both in the existing home sales market as well as in the new homes sales market, have increased considerably. It is true that any housing price effect is not going to affect shelter costs immediately, but this is probably another added good news for Fed officials who were probably looking ahead for next year’s inflation expectations.
Our forecast for the next several months is for relatively benign inflation numbers, which will help cement Fed officials’ confidence in the staying power of the current disinflationary path and thus we expect them to be able to cut interest rates at least twice during this year.
Economic and market conditions are subject to change.
Opinions are those of Investment Strategy and not necessarily those Raymond James and are subject to change without notice the information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. There is no assurance any of the trends mentioned will continue or forecasts will occur last performance may not be indicative of future results.
Consumer Price Index is a measure of inflation compiled by the U.S. Bureau of Labor Studies. Currencies investing are generally considered speculative because of the significant potential for investment loss. Their markets are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising.
The National Federation of Independent Business (NFIB) Small Business Optimism Index is a composite of ten seasonally adjusted components. It provides a indication of the health of small businesses in the U.S., which account of roughly 50% of the nation's private workforce.
The producer price index is a price index that measures the average changes in prices received by domestic producers for their output. Its importance is being undermined by the steady decline in manufactured goods as a share of spending.
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