Analysts say end of stimulus aid threatens US retail sales rally

U.S. retail sales climbed past pre-pandemic levels, but economists warned that high unemployment rates and lack of monetary support could drag the recovery into a W-shaped trend.

U.S. retail sales climbed as much as 1.2% seasonally adjusted rate in July, as per the Department of Commerce’s report released on Friday, August 14. A proof that the sustained upward trend in retail purchases for three consecutive months—despite the on and off stay-at-home protocols—has paid off.

US retail sales bounce back to pre-pandemic levels

As Moody’s Analytics’ chief economist Mark Zandi puts it, “[w]e are back to where we were before the pandemic.” Retail sales in July rose by 2.7% compared to last year’s rate of the same period, while it had a slight increase of 1.2% from June’s 8.4%.

But despite the growth, the department noted that it is still lower compared to May (18.3%) and June (8.4%) total retail purchase percentage. It is also below the 2.3% growth economists predicted last month, as per a survey polled by Dow Jones.

July’s slow growth reflects declines in revenues in various industries, including building material stores and autos, as per the data.

Weak demand for clothing and restaurant/bar service also added to July’s sluggish increase, with only 5.7% and a five percent increase, respectively. Home and garden suppliers’ sales plunged by 2.9% as well. Book stores, as well as sporting goods, are down by five percent too.

Analysts say end of stimulus aid threatens US retail sales rally

On the other hand, other sectors made a remarkable increase. Sales for electronic and appliances stores, for instance, jumped by 22.9%.

Overall, U.S. retail sales had quite a steady upward trend for three months despite the resurgence of coronavirus last month.

Economists warn of W-shaped trend

Many economists find the recent data alarming, however. Stephen Gallagher of Societe General SA, for example, said that eating out, travel, and sporting and entertainment events are “going to struggle for quite some time,” citing that the upward trend mostly reflects a few sectors only.

“Where we are buying from is a bit different, but we are actually at some pretty strong numbers now,” the chief U.S. economist at Societe General SA told Bloomberg.

Another problem analysts find is that the end of stimulus aid could drag the recovery to a W-shaped trend instead of a V-shaped only. The US$600 a week unemployment benefit had help played a vital part in the recovery of retail purchases.

But because it already expired at the end of July, analysts expect consumer spending to fall together with retail sales in the coming months.

A separate report from the University of Michigan shows that consumer sentiment remained weak in August, with a slight increase from the prior month’s numbers. Consumer spending fell sharply in the first week of August—which started before July ends—as well, according to a survey polled by GlobalData.

“It is [end of unemployment insurance] setting the stage for a bigger collapse in the fourth quarter,” Grant Thornton chief economist Diana Swonk told CNBC.

Still, she noted that despite retrenchment due to lack of financial help, retail sales’ third-quarter would again see substantial numbers.

Images courtesy of Burst/Pexels and Dean Drobot/Shutterstock

Micky is a news site and does not provide trading, investing, or other financial advice. By using this website, you affirm that you have read and agree to abide by our Terms and Conditions.
Micky readers - you can get a 10% discount on trading fees on FTX and Binance when you sign up using the links above.