Even as coronavirus infections continued to spread, re-openings for schools were recorded and unemployment remained close to historic levels, Americans kept shopping in July with retail sales up 1.2 percent from June, making a rare bright spot in the abuses economy reflected.
The jump in sales prices reported on Friday by the Department of Commerce, although smaller than the increases in the previous two months, showed that the return in spending to pre-pandemic levels was not a fluke. Sales are now back to the level they were in February. It was instead a sign that consumerism, captivated by government support, remains pervasive, even as many other facets of American life become less and less apparent.
“It shows that there is a willingness and a desire to spend,” said Michelle Meyer, chief U.S. economist at Bank of America. “There is no doubt that the recovery in consumer spending is robust.”
Retail sales in June rose 8.4 percent. That followed a May jump, 18.2 percent, that was the largest monthly flow on record. But that had followed two months of record declines.
Some of the recovery has been helped by the $ 600 per week in unemployment assistance, which expired at the end of July. If Congress does not extend the emergency bill, it could dismiss the retail rebound in the coming months. And there are certain sectors of the sector that may never really return until a vaccine is approved and widely distributed, allowing people to shop and dine again without fear.
Foot traffic to brick-and-mortar stores that sell primarily discretionary goods, including clothing retailers, remains down as much as 43 percent less than last year, according to research by Morgan Stanley.
That persistent low traffic – following weeks and even months of temporary store closures – helps explain why a record number of retailers have declared or closed bankruptcies during the pandemic, even as sales of products such as groceries, home entertainment and appliances have been booming.
Many analysts had predicted that growing infections in states such as Arizona, California and Texas that forced restaurants and stores to reopen after reopening in July would boost retail sales.
There were some regional dips, but national sales continued to rise. Some economists said that pointed to the substantial shift the country had made to online shopping during the pandemic.
“This year is a complete game changer in terms of e-commerce,” said Mickey Chadha, senior credit officer at Moody’s Investors Service.
But selling goods online is by no means a panacea. In fact, it can be much more expensive for retailers because of shipping costs. Even as online purchases increase during the pandemic, many retailers are seeing profits drop.
“Profitability will not return to last year’s levels until 2022,” Mr Chadha said.
However, the increased emphasis on e-commerce has driven retailers to embrace change. Companies like Levi Strauss & Company, the denim seller, have accelerated the introduction of features like pick-up for down and appointment shopping and are testing same-day delivery. The pandemic has supercharged “what took maybe five or 10 years and compressed it in this very short period of time,” said Chip Bergh, Levi’s chief executive.
With stores and department stores struggling, brands like Levi’s are forced to think about the best way to reach customers. “With hundreds of doors closed by more traditional department stores, we are re-creating the market,” Mr Bergh said. The market has expanded to about 140 to 150 Target locations in the past 18 months “and as other department stores will close, we are working with Target to see if there are any opportunities for us to do more.” He also said the brand has a successful value line at Walmart and a long-standing partnership with Amazon.
Many retailers are dealing with an unusual after-school shopping season, which typically drives sales in July and August. This year is different, with many schools and colleges planning to start remotely.
Bed Bath & Beyond recently introduced a “College at Home” section on their website, encouraging parents and students to purchase new items to transform their childhood rooms into what they called ‘dreamy dorm spaces’ for distance learning, with youthful themes such as “chill camp vibes,” “empty key” and “modern glam.”
The goal is to make the rooms “more efficient and exciting for them, even when they can’t be on campus,” said Joe Hartsig, chief merchandising officer at Bed Bath & Beyond. “It’s a real window of change for students to reflect that they have moved out of high school and into college, and want their room to reflect another room.”
Kohl’s offers for school are mentioned online with the tagline, “Return or log in, the new year begins here.” The typical clothes and backpacks are followed by a link to face masks and hand masks. Another section tailored to distance students provides “everything children need to define the routine.” It includes links to educational toys and virtual learning materials, as well as others titled “Your Kitchen Cafeteria” and “Backyard Recess.”
Wall Street waited between profit and loss as investors reviewed fresh data on retail sales in the United States and new economic figures from China.
The S&P 500 was slightly lower in early trading. On Thursday, the index fell less than half a percent after days of profit. It was still close to a record high.
European markets were 1 to 2 percent lower. Earlier in Asia, Chinese indices had a good day, driven by some positive economic data.
The U.S. Commerce Department on Friday reported that retail sales rose 1.2 percent in July from June, even as coronavirus infections spiked in multiple states. It was the third straight month of increases, although growth is increasing. Some U.S. consumers had, until the end of July, been supported by a $ 600-a-week benefit from the government. Congress is in a dilemma over further help to the unemployed, which could affect retail sales going forward.
Britain announced Friday that people arriving from France, the Netherlands and Malta will have to isolate themselves for 14 days, following a rise in cases of coronavirus in those countries. The new rules threw a wrench into many holiday plans, and raised doubts about easing efforts. Travel companies felt a direct impact, including airlines: shares of EasyJet and the parent company of British Airways fell, as tour operator the TUI.
Underlining the concerns, France on Friday declared Paris and the Marseille region high-risk zones, giving local authorities the power to impose new restrictions aimed at curbing the spread of the coronavirus.
In China, economic data showed industrial output in July nearly 5 percent up from a year earlier, while retail sales fell 1.1 percent in the same period. It was a further sign that while China’s factories were buzzing, its residents were reluctant to make purchases.
The U.S. economy struggled to shake off the recent recession, with historically slow growth and a labor market that took more than six years to recover to its previous employment levels. A big part of the reason: state and local governments, which cut spending and lay off workers amid widespread budget deficits.
The same dynamic poses one of the greatest threats to America’s recovery from the pandemic decline. State governments are once again experiencing extreme budget problems as they pay increasing sums to cover the unemployment and health costs caused by the coronavirus crisis, while revenue from sales tax and business and personal income tax payments fall. States could close at least $ 555 billion by fiscal year 2022, according to one estimate.
Economists warn that the long-term risk coming from troubled states this time around could be even more damaging than the 2007-9 recession, unless Congress steps in. Yet more support to state and local governments has become one of the biggest political battles in the fight over another pandemic rescue package.
The First Chamber formally forgot on Thursday until early September, all eventually ending all chances that an agreement could be reached soon. Chamber members were already out of Washington.
While many governments have entered the downturn with solid tax revenues and billions of dollars in their clean-up day funds, those coffers are quickly disappearing. State revenues “could fall as much as more than they did in the worst year of the Great Recession and remain depressed in the following years,” according to the Center for Budget and Policy Priorities, a progressive think tank.
The federal aid to unemployed workers announced by President Trump last weekend seems likely to be smaller than originally suggested – and it remains unclear when the money will start flowing, how long it will take or how many workers will benefit.
Mr Trump said Saturday he was taking executive action to provide unemployed workers with $ 400 a week in additional payments, with states raising a quarter of the cost. He did so after talks about a new round of pandemic relief that stopped in Congress.
States scramble to figure out how to execute the plan. Here is what we know so far:
The benefit will be $ 300 for most workers, not $ 400. Rather than adding $ 100 a week on top of existing unemployment benefits, states can count existing benefits for their share.
It can take weeks for the money to start streaming. States must adapt their processing systems to the new provisions if they are already overwhelmed by applications for unemployment.
The money will not last long. The executive action of Mr. Trump is spending $ 44 billion on the program, enough to cover five or six weeks of benefits, assuming all states sign up.
Employers are left in limbo. For unemployed workers, the uncertainty hangs over the accumulation of credit card debt and threatening rent payments. And those who collect less than $ 100 a week in state unemployment benefits do not qualify for the new supplement.
