Suffering Stores Struggle to Keep Up With Stuffed Stockings

This year's holiday shopping season is feeling a lot like pre-pandemic times. There are plenty of items on store shelves, and retailers are offering discounts to attract shoppers. It's a far cry from the more subdued atmosphere of last year, when many people were avoiding shopping in person due to the pandemic.

The recent drop in oil prices is a reflection of how the combination of supply-chain snarls and stepped-up demand for goods that pushed prices sharply higher is beginning to unwind. This is one of the reasons that inflation could cool significantly in the months ahead.

Retailers have largely wrapped up reporting earnings for their fiscal third quarters, and the picture has been decidedly mixed. Some retailers, such as Walmart and Macy's, have pleased investors with their aggressive stance on suppliers and their ability to draw in high-income shoppers. However, other retailers, such as Target and Kohl's, have not been as successful. Best Buy reported a drop in comparable-store sales, but still managed to top estimates.

This is a far cry from the past two years, when the No. 1 issue for many retailers was whether they would have enough stock to meet demand. It also underscores how much the strains on supply chains have eased, speeding the flow of goods to businesses to the point that many of them probably wish they hadn't ordered so much.

According to Commerce Department figures, U.S. imports of toys, games and sports equipment totaled $28.8 billion in the six months ended September. This is up from $16.2 billion in the same six-month period last year and $17.9 billion in the same period in 2019. Even taking into account rising prices, which in the case of toy imports has been fairly muted, this is a lot of stuff to try fitting under the Christmas tree.

The holiday shopping story is emblematic of the dynamic unfolding in the economy generally. According to the Institute for Supply Management, manufacturers surveyed last month marked down nine things that were in short supply. That is compared with 26 a year earlier. One item that fell off the list was “ocean freight.” But you could figure that out by just looking at shipping costs: London-based Drewry Shipping Consultants reported on Thursday that prices for transporting containers around the world this week are down 74% from a year ago.

The recent easing of supply constraints is helping to cool costs. According to the Labor Department's report last week, price increases at the wholesale level have continued to moderate in October, while import prices have fallen for a fourth consecutive month. This means that the prices Americans pay for goods are starting to ease as well, with consumer prices for goods excluding food and energy down in October from September.

There is likely more to come, as easing supply-chain problems and slipping consumer demand combine. Inflation has eroded some spending power, but also, much was bought during the pandemic. Adjusted for inflation, Commerce Department figures show that sales at sporting goods, hobby, musical instrument and book stores were 23% higher over the 31 months extending from March 2020 to this September than they were over the prior 31-month period.

Goldman Sachs economists believe that the resolution of supply-chain disruptions will have a significant impact on inflation in the coming year. They estimate that supply constraints on durable goods have added 0.6 percentage point to the year-over-year change in the Commerce Department’s measure of consumer prices excluding food and energy items. By the end of next year, they believe that this will have swung to a negative 0.45 point.

This would be welcome relief for consumers. However, many consumer-facing companies are not expecting any easy improvements.