Consumers continue to spend

Retail sales rose for the sixth consecutive month in September despite persistent inflation.

November 09, 2023
  • Saul Lua

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Persistent supply chain issues and an uncertain geopolitical outlook contributed to the high inflationary environment we saw in 2022. The Federal Reserve’s interest rate hikes have helped tame overall inflation to an annual rate of 3.7% in September, down from 8.9% at its peak in June 2022.

While inflation still has a long way to go before it reaches the Federal Reserve’s 2.0% target rate, consumers continue to spend, with retail spending rising 0.7% month-over-month and 3.8% year-over-year in September.

Overall and grocery inflation has improved since peaking in 2022

The U.S. Consumer Price Index peaked at 8.9% in June 2022, the highest annual inflation rate since December 1981. Since then, overall inflation has gradually cooled through interest rate hikes, with the consumer price index registering its lowest annual increase of 3.1% in June 2023.

The high inflationary environment complicated the outlook for grocery retailers as the cost of groceries rose. Pricing for “food at home” skyrocketed and outpaced the inflation rate for all retail categories, peaking at 13.5% in August 2022. Since peaking, grocery inflation continued to outpace total inflation but has steadily cooled. In September 2023, “food at home” prices rose at an annual rate of 2.4%, an 11.1 percentage-point decline from its peak last year.

However, over the past couple of months, overall inflation has been on the rise, increasing at an annual rate of 3.7% in September, a 5.2 percentage-point decline from its peak in June 2022.

Retail sales rose for the sixth consecutive month in September

Retail sales rose 0.7% month-over-month in September - the sixth consecutive month of growth since April - bringing total retail sales to $704.8 billion.

Retail sales rose 3.8% in September year-over-year, driven by consumers continuing to dine out and catch deals online. Spending on restaurant and bars saw a 9.2% increase year-over-year in September, followed by nonstore retailers’ 8.4% increase. Grocery stores saw a modest 1.6% increase year-over-year in September.

Restaurant and bars spending outpaces grocery spending.

In March 2020, grocery store spending surpassed that of restaurant and bars as the nation locked down. Stay-at-home-orders and public health concerns boosted demand for online grocery orders and deliveries. As the economy began to slowly reopen a year later, consumers’ desire to socialize, encouraged dining out. In March 2021, restaurant and bars spending surpassed grocery store spending once again.

In February 2022, restaurant and bar spending totaled $75.6 billion and grocery store spending totaled $69.6 billion, a $6 billion difference. Since then, the gap between the two continues to widen. A partial reason can be attributed to grocery inflation. As consumers adjusted to a new normal, the rising cost of groceries made it more convenient for many to dine out at restaurants instead of cooking at home, as trips to the grocery store became more expensive.

In September 2023, the difference between restaurant & bars and grocery store spending grew to $17.6 billion, nearly tripling the difference in spending between the two recorded in February 2020.

Contact Saul Lua

Research Analyst, Retail