Stronger-than-expected retail sales data and earnings from big-box chains painted a heady picture of US consumers on Tuesday despite global supply chain snarls that have fueled inflation and created shortages.
The Commerce Department reported retail sales in October scored their biggest month-on-month jump since March.
Earlier, both Home Depot and Walmart released results that topped expectations, with the latter offering reassurances it expects sufficient inventories for the festive season and emphasizing a cautious approach in passing on higher costs to consumers.
Together, the government data and earnings suggest that many consumers are still well situated thanks to a strong employment market and government support payments sent out earlier in the pandemic.
But inflation is a rising worry.
"We haven't seen this kind of inflation in the US for quite some time," said Walmart Chief Executive Doug McMillon, flagging in particular the drag from higher gasoline prices.
"They're up dramatically versus a year ago," McMillon said on a conference call with analysts, predicting they would eventually fall. "Hopefully that's a gradual process and hopefully gas prices come down."
Neil Saunders, managing director at GlobalData, said elevated consumer savings should mitigate the hit to consumption in 2021.
"Looking further ahead, if inflation is not tamed, we see it becoming more of a brake on underlying or real growth," he said. "This is a particular risk if the weather turns colder and bills for household heating and fuel soar."
- 'Blockbuster holiday season' -
The Commerce Department said retail sales rose 1.7 percent in October from September's upwardly revised rate, above expectations as a range of companies reported increasing business.
Non-store retailers, such as e-commerce platforms, saw sales gain four percent, while electronics and appliance stores reported a 3.8 percent increase. Department stores and building materials sellers also saw increases, while sales at bars and restaurants were flat last month.
While the University of Michigan said last week that its consumer sentiment index had dropped to a 10-year low, Ian Shepherdson of Pantheon Macroeconomics said the retail sales data show "what people do is much more important than what they say."
"We expect a blockbuster holiday season as people make up for lost time and begin to run down some of the $2.5 trillion in accumulated excess savings since the pandemic began," he predicted.
- 'Hedged' for inflation -
At Walmart, net income for the quarter ending October 31 dropped to $3.1 billion, down 39.5 percent from the year-ago period due to a loss connected to paying down debt.
Revenues rose 4.3 percent to $140.5 billion behind a robust 9.2 percent jump in comparable sales at US Walmart stores.
Confronted with backlogs at US ports, Walmart has been among the giant retailers to charter their own ships and route them to smaller ports.
Inventories at Walmart's US business are up 17 percent compared with two years ago, the company said in a presentation Tuesday.
The biggest retailer in the world acknowledged the higher costs connected with global shipping and supply chain pressures, saying it has reduced markdowns on goods to lessen the hit to profit.
But McMillon told analysts the company is not passing all of its cost inflation to its products, and that the company remains committed to a business model that emphasizes affordability.
"The purpose of the company is to save people money and help them live a better life and we get excited about trying to do that," McMillon said, adding that the chain is "hedged" for an inflationary environment because of its scale.
"We've got lots of flexibility as we monitor price gaps," he said, noting an ability to raise prices in ways that won't be as onerous for consumers.
Walmart boosted key forecasts, now projecting full-year adjusted earnings of $6.40 a share, up from the prior range of $6.20 to $6.35 after US comparable sales jumped by 9.2 percent in the third quarter.
Home Depot also reported third-quarter results Tuesday, posting profits of $4.1 billion, up 20.3 percent from the year-ago period on a 9.8 percent rise in revenues to $36.8 billion.
Walmart shares closed 2.6 percent lower at $143.17, while Home Depot gained 5.7 percent to finish trading at $392.33.