Northwest Arkansas Democrat-Gazette
Again, shoppers turn out, boost retail sales
July’s 1.2% rise far short of May, June
WASHINGTON — Americans increased their spending at retail stores and restaurants in July for a third-straight month, but some evidence suggests that sales are weakening with the expiration of government rescue aid that had put more money in people’s pockets.
Friday’s report from the Commerce Department showed that retail purchases rose by a seasonally adjusted 1.2% last month. The gains of the past three months have now restored retail purchases to levels reached before they plunged in March and April when the pandemic shuttered businesses and paralyzed the economy.
Yet with Americans’ overall income now likely shrinking, economists expect spending to slow further.
July’s sales increase was much smaller than May’s 18.3% gain and June’s 8.4% increase, when shoppers flocked to newly reopened businesses. In July, the viral outbreak surged again in
much of the nation, forcing some businesses to shut down again.
Consumers pulled back on big-ticket items like cars, building materials and sporting goods in July, but spent more on food, gasoline, and health and beauty products, the Commerce Department said. Spending increases were generally modest, with one exception: Electronics and appliance stores grew 23% from June as families stocked up on laptops, headphones and webcams to prepare for a virtual start to the school year in many parts of the country.
“Gains were extremely uneven,” Diane Swonk, chief economist at Grant Thornton, wrote in a note to clients. “Retail sales showed signs of slowing in July, which underscores our concern that the rebound is losing momentum.”
Overall consumer spending inched up to $536 billion, from $529.4 billion in June.
Sales at restaurants and bars grew 5% last month after much more robust increases of more than 30% in May and 27% in June. Restaurant and bar revenue remains about one-fifth below its levels of a year ago.
FEDERAL INCOME BOOST GONE
The problem now is that roughly 28 million laid-off workers are no longer receiving a $600-a-week federal unemployment check that they were getting in addition to their state benefit but that lapsed last month. In addition, a $1,200 stimulus check that was sent to many Americans in April and May likely won’t be repeated. Negotiations in Congress on a new economic relief package have collapsed in rancor and show no sign of restarting anytime soon.
Many retailers have said the supplemental unemployment aid had helped spur sales of clothes and other nondiscretionary items in the spring and early summer.
“Consumers have been largely shielded from economic realities by the various stimulus and benefit programs,” said Neil Saunders, managing director of GlobalData Retail. “However, many of those advantages expired at the end of July, and August will be the first month when the chill winds of economic turmoil hits many households.”
The three-consecutive months of sustained retail recovery is exactly what policymakers were hoping the stimulus money would accomplish. By spending their benefits on food, clothing and appliances, rather than saving the money, Americans have helped keep many retailers and their employees and suppliers afloat.
The retail rebound is likely to bolster arguments in Congress that a robust form of supplemental unemployment assistance should be extended. Without a large subsidy, economists predict, consumption will stall in August and into the fall, damaging the broader economy.
Consumers had started to cut back on spending in late July, according to a Global Data survey, and spending fell sharply in the first week of August. Many consumers are spending more around the home and on recreational equipment while still maintaining a nervous outlook.
Friday’s report captures only about one-third of all consumer spending. The rest involves services — from haircuts and gym memberships to movie tickets and hotel rooms — all of which were hit disproportionately hard by the pandemic and have yet to recover
In the April-June quarter, consumer spending collapsed by a record amount, causing the economy to shrink at a previously unheard-of annual rate of 32.9%. Economists have forecast that growth is rebounding in the July-September quarter at a roughly 20% annual rate, though that pace would still leave the economy far below pre-pandemic levels.
SHIFT TO ONLINE SALES
The government’s figures mask a huge shakeout in the retail industry, with Americans pulling sharply back on in-person shopping and spending more online. More than 40 retailers have filed for bankruptcy protection this year, about half of them since the pandemic. That’s about double the number for all of 2019.
“This year is a complete game-changer in terms of e-commerce,” said Mickey Chadha, senior credit officer at Moody’s Investors Service.
Troy Carlson has seen online sales pick up significantly at his Disney memorabilia store not far from Wong’s spice shop in Sacramento, Calif. Even as infections in California increased last month, he estimates that sales were about 75% of their normal levels.
But Carlson worries that his success is not sustainable if other businesses around him in the city’s waterfront district are failing and the foot traffic declines.
“Our business motto is to get to 2021,” he said. “We want to get to the other end but we are concerned about what the other end will look like.”
PROFITS FALLING
But selling goods online is by no means a panacea. For one thing, it can be far more expensive to retailers because of shipping costs. Even as online buying increases during the pandemic, many retailers are seeing profits drop.
“Profitability is not coming back to last year’s levels until 2022,” Chadha said.
President Donald Trump has signed an executive order that would replace the $600 a week in federal jobless aid with $300 a week from a disaster relief fund. Yet that would require the states to establish a separate payment system that would likely take weeks. In the meantime, the loss of the $600 will cut recipients’ income, on average, by one-half to three-quarters.
That prospect has unnerved Tia Ferguson. A 40-year-old substitute teacher in Columbus, Ohio, Ferguson was laid off in March. Beginning in June, she managed to receive both her state’s unemployment benefit and the $600 federal check. It’s unclear when she might be recalled to work, and she is reluctant to teach in person until after a vaccine is approved. A diabetes and asthma patient, she worries about the risks of returning to the classroom.
Ferguson’s husband earns income as an auto mechanic but is still building a business that he recently started. The couple has taken to reducing their three kids’ video game time to save on electricity.
“I don’t know when I’ll have a steady stream of income that’s even close to what I was making,” she said.