U.S. retail sales kick off in July; obstacles mount for emerging economic recovery

WASHINGTON (Reuters) – U.S. retail sales increased less than expected in July as consumers cut back on motorcycle purchases, and could move slowly in the months ahead amid spiraling new COVID-19 infections and a reduction in controls for unemployment benefits.

Despite the moderation in retail sales reported by the Department of Commerce on Friday, sales have recovered losses suffered when companies were shut down to slow the spread of the coronavirus. The third straight monthly gain increased retail sales to their highest level since the government began tracking the series in 1992. It supports the view that consumer spending would rebound this quarter after a record fall in the second quarter.

Economists attributed the increase in retail sales over the past three months to a supplement of the government’s $ 600 weekly unemployment benefits, which amounted to nearly $ 75 billion in July. The supplement ended on July 31, prompting economists to expect a decline in retail sales in August.

“It looks like the skies are darkening again as the second wave’s shutdowns intensify economic activity and the federal government stops sending $ 600 weekly checks to the unemployed,” said Chris Rupkey, chief economist at MUFG in New York. “The pandemic is not over yet and the recession will not be either if Congress and the President cannot agree on how to support the emerging recovery in an urgent manner.”

Retail sales rose 1.2% last month after rising 8.4% in June. Economists surveyed by Reuters had predicted that sales would increase 1.9% in July. Sales increased 2.7% from a year ago in July.

President Donald Trump on Saturday signed a number of executive orders, including one that extended the supplement, although he reduced the weekly payout to $ 400.

States are required to cover $ 100 of the benefits under the order, but they are under enormous financial pressure due to the pandemic. The remaining $ 300 will be funded from a limited emergency relief program, which economists estimate will be phased out in early September.

A White House top adviser said this week that Trump’s plan would provide an additional $ 300 a week. Republicans and Democrats are baking over new aid to the economy, even as signs point to activity ceasing as coronavirus infections continue to spread across the United States.

Job growth passed in July. About 28.3 million people are on unemployment benefits.

FILE PHOTO: People visit Destiny USA shopping mall during the reopening, as the limitations of coronavirus (COVID-19) disease are released, in Syracuse, New York, US, July 10, 2020. REUTERS / Maranie Staab

The delay in retail sales in July was led by a 1.2% increase in receipts at car dealerships. That followed a 6.1% acceleration in June. Consumers are also reducing spending at hobby, musical instrument and bookstores, as well as at building materials stores.


Purchases at electronics and appliance stores would go up by 22.9% last month, which is probably a strong demand because many Americans work from home.

Receipts at restaurants and bars increased 5.0%, although the rate dropped from the 26.7% notch in June. Online and mail order retail sales rebound 0.7%. The sale of furniture stores was flat. Receipts at clothing stores grew 5.7%.

Excluding cars, petrol, building materials and food services, retail sales increased 1.4% in July after increasing 6.0% in June. These so-called core sales correspond most closely to the consumer expenditure component of the gross domestic product report.

Consumer spending fell at an annual rate of 34.6% in the second quarter. As a result, GDP fell at a rate of 32.9% over the past four years, the deepest decline in exports since the government began in 1947.

A separate report from the University of Michigan on Friday showed that consumer sentiment is stable in mid-August, although consumers expect “bad economic times will not only continue into the next year” and many “do not expect a return to a period of uninterrupted growth over the next five years. ”

Shares on Wall Street were mixed in the midday trade. The .DXY dollar traded lower against a currency exchange rate, while US Treasury prices rose.

“Providing further assistance to troubled households will be essential to maintain the momentum of the downturn,” said Lydia Boussour, a senior U.S. economist at Oxford Economics in New York. “This is even more critical because recent research shows that low-income families have played a central role in driving the initial phase of recovery recovery.”

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Although motor vehicle sales fell last month, manufacturers continued to increase production, increasing output at the nation’s factories, a third Federal Reserve report showed. Production output rose 3.4% in July after rising 7.4% in June. Still, the third straight monthly gain left factory production about 8% below its level in February.

“Excessive capacity throughout the economy will weigh on investment capital production,” said Gus Faucher, chief economist at PNC Financial in Pittsburg. “The biggest downside risk is a failure by Congress and the Trump administration to vote on a fiscal incentive package that would support consumer demand in a period of very high unemployment.”

Report by Lucia Mutikani; Edited by Chizu Nomiyama and Paul Simao

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