Keith Cunningham from South Carolina Walt Disney Clothing Stores at Bargain World Gift Shop near Walt Disney World, where it is undergoing a phase reopening of coronavirus (COVID-19) disease in Lake Buena Vista , Florida, July 11, 2020.
Octavio Jones | Reuters
Retail sales rose to a record high in July, recovering from what was lost in the pandemic, but handball in consumer spending is in jeopardy due to the failure of Congress to agree to a new fiscal incentive package.
July retail sales increased 1.2% from June, to $ 536 billion, up 2.7% from July last year. The June sales profit was revised up to 8.4% from 7.5%.
“We’re back to where we were before the pandemic. If there’s one part of the economy that has a V-shaped recovery, it’s retail,” said Mark Zandi, chief economist at Moody’s Analytics. But economists say V could be turned into a W because the unemployed will lose increased benefits that individuals provided a supplement of $ 600 a week until July 31st.
Retail sales are seen as one barometer of consumer health, and with 28 million people still accumulating some form of unemployment assistance, economists say in mid-July that assistance has played a major role in bouncing back in sale. Special pandemic assistance for gig workers and the self-employed will continue through December.
Diane Swonk, chief economist at Grant Thornton, said they did not increase their third-quarter GDP forecast because of the strong data. They are waiting to see what happens in August, when the unemployed will no longer receive the extra funds.
“Even if we get a rejection related to the loss of benefits and unemployment insurance, we will still have a strong third quarter, but it is the stage for a larger collapse in the fourth quarter,” she said. “Retail sales in August could be flat to the bottom.”
Democrats in the House had sought to keep the $ 600-a-week paycheck, but Republicans in the Senate proposed just $ 200. Talks stopped, and the Senate has now taken a recession. President Donald Trump has signed an executive order providing $ 300 a week for the unemployed, asking states to add $ 100 to that number. However, it may take several weeks for the funds processed and this would vary by state.
Critics point to studies showing that 70% of recipients receive more than their normal salaries, and some economists say that part of the decline in people collecting unemployment claims may be due to fact that workers returned to their jobs when the extra payments ran out.
But the payments seem to be a clear help to the consumer, who represents about 70% of the U.S. economy.
One of the larger gains in July of last year was in sales at groceries, up 10.6%.
“One reason is that people are returning to bars and restaurants, but also food safety is being intensified,” Swonk said. “That’s the area we want to look at in August, when we lose the $ 18 billion … That’s what the $ 600 weekly estimate translates to – $ 18 billion in total.”
Spending in restaurants and bars rose 5% over June. Sales of electronics and appliances were the highest, with 22.9% gaining from June, but still 2.8% lower than last year. Clothing and apparel sales rose 5.7%, but are down 20.9% from a year ago. Car sales were up 1.2% from June, but went up by 6.1% over last year.
General purchasing services were 0.2% from June. “That’s a window into retail spending wider. The fact that it was still struggling indicates that this V could become a W unless the consumer gets some help,” Zandi said.
Zandi said it is difficult to see how the economy gets to the other side of the pandemic without an incentive package to bridge support to the unemployed and also help states and local governments.
“The states will have to pay with salaries and programs. Payments from state and local government are from July, from February 1.3 million,” Zandi said. “That reflects their lack of budget in 2020. They are counting on the feds to come up with money.”
Zandi said the retail sector has gotten disproportionate to the pandemic because people changed their behavior. Many still work from home and spend on furniture and other categories for home improvement. For example, sales of building materials and garden materials increased 14.8% from a year ago.
“The rest of consumer spending is L-shaped, all spending on services goes nowhere. That’s where most of the spending goes,” Zandi said. “The broader consumer picture is still weak and until the pandemic is over, I do not think consumers will travel, go on planes, to ball games or gyms … The economy will continue to struggle until the pandemic is over.”
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