US retail sales exceeded expectations; weekly unemployment claims still high

WASHINGTON (Reuters) – US retail sales rose more than expected in June, but a resurgence in new COVID-19 cases is hurting the fledgling recovery, keeping 32 million Americans with profits from unemployment.

The second consecutive monthly increase in retail sales reported by the Commerce Department on Thursday did not change expectations that the economy suffered its biggest contraction in the second quarter since the Great Depression. The economy fell into recession in February.

A Federal Reserve report warned Wednesday that the economic outlook was “highly uncertain” and depended on the duration of the pandemic. New cases of respiratory illness have exploded, especially in the densely populated south and west, forcing some authorities in these regions to close businesses again or pause the reopening.

“Unfortunately, the alarming trajectory of the virus across the country has cast doubt on the sustainability of the recovery in consumption,” said Lydia Boussour, a US economist at Oxford Economics in New York. “Real-time data indicates that demand is faltering in states where the health situation has deteriorated the most.”

Retail sales rose 7.5% last month after jumping 18.2% in May, which was the biggest gain since the government began following the series in 1992. Economists polled by Reuters had forecast sales retailers would advance 5% in June.

Retail sales have picked up as companies resumed operations after closing in mid-March in an effort to curb the spread of the coronavirus. Retail sales in June were driven by an 8.2% increase in revenue at car dealerships.

Sales at service stations increased 15.3%, driven by higher gasoline prices. Revenue from electronics and appliance stores increased 37.4%. Clothing store sales increased 105.1%. Furniture store sales advanced 32.5%.

Revenue in restaurants and bars soared 20.0% and spending on hobbies, musical instruments, and bookstores increased 26.5%. But online and mail order retail sales fell 2.4%. Sales at construction materials stores fell 0.3% and revenue at grocery stores fell 1.6%.

Shares on Wall Street opened lower amid concerns about coronavirus cases skyrocketing. The dollar was stable against a basket of currencies. US Treasury prices rose.

RECOVERY

Excluding automobiles, gasoline, construction materials, and food services, retail sales increased 5.6% in June after increasing 10.1% in May. These so-called main retail sales correspond more closely to the consumer spending component of the gross domestic product report.

Economists expect that consumer spending, which accounts for more than two-thirds of America’s economic activity, could decline at an annualized rate of up to 37% in the second quarter. That could result in a drop in GDP at a rate of around 36% in that period. The economy contracted at a rate of 5% in the January-March quarter, the biggest contraction since the Great Recession 2007-2009.

A separate report from the Labor Department showed Thursday that 1.30 million people applied for state unemployment benefits during the week ending July 11, slightly down from 1.31 million in the prior period.

Economists had forecast 1.25 billion requests last week. Claims for the first time reached a record high of $ 6,867 million at the end of March. Even now, they remain roughly double their peak during the 2007-09 Great Recession. Including a government-funded program, 2.23 million people filed claims last week.

The number of people who received benefits after an initial week of aid fell from 422,000 to 17,338 million in the week ending July 4. These so-called continuous claims, which are reported with a delay of one week, exceeded a record of 24,912 million in early May.

There were 32 million people who received unemployment checks across all programs in the last week of June, 433,005 fewer than the week before. According to economists, this number, which is reported with a delay of two weeks, offered a more accurate reading of the labor market.

Economists say unemployment remains uncomfortably high due to a second wave of layoffs, which could escalate as COVID-19 infections reduce demand and bankruptcies increase, especially in the retail sector.

“The claims add to evidence that the recovery may be stagnant and reach a critical juncture in the crisis as COVID-19 cases increase across the country and expanded unemployment benefits for Americans expire,” said Daniel Zhao, a senior economist at Glassdoor. “The risk of a surprise job drop in July is increasing, pointing to a recovery from the roller coaster as the job market begins to drop again.”

Millions will lose their unemployment checks on July 31 when the government stops paying an additional $ 600 a week to unemployed self-employed workers, workers, and contractors who do not qualify for regular state unemployment benefits. Economists have warned that ending these controls would undermine retail sales and overall consumer spending.