Retail sales rose 0.6% in August, after being revised down for the month of July, despite a further reopening of the economy. The data was much weaker than many were hoping and reflects the lapse in $600 per week supplements in unemployment insurance (UI) provided by the CARES Act. Hardest hit areas were sporting good stores, which surged during the pandemic, grocery and traditional department stores. It is notable that Walmart warned of a blow to spending in its stores after the supplement lapsed in early August. Food insecurity is a particular concern.
Online spending flatlined after surging earlier in the pandemic as those who could shifted spending to buying luxury vehicles and upgrading their homes. Spending at restaurants and bars jumped with continued reopenings. This is a category we will need to watch closely in the months to come. Many outdoor venues will not be feasible as temperatures drop across much of the country. Consumers and firms have canceled holiday celebrations, which will be a blow to retail spending in the fourth quarter.
Spending on clothing posted solid gains for the month but remained in the red from a year ago. Luxury brands have taken it on the chin as social distancing has curbed the ability for consumers to be conspicuous in their consumption. Shoe stores are also suffering, with the exception of athletic shoes.
Spending on garden and building materials stores continued to increase and is up more than 15% from a year ago. Lumber prices have soared as supplies dwindled. Most lumber producers did not anticipate the surge in repairs and remodeling that occurred as the pandemic took hold.
The damages caused by fires out West and major storms will further deplete lumber supplies. The rebuilding that follows natural disasters is not what it once was. Insurance companies have had to raise rates and leave fewer homes covered in response to the surge in disaster claims in recent years, while FEMA remains strapped. The administration raided FEMA’s budget to provide a temporary $300 per week bridge for some of those losing their $600 a week in UI supplements.
The control measure of retail sales, which goes into the GDP calculation for the third quarter, actually contracted by 0.1% for the month. The rebound in real GDP growth still looks like it is tracking at close to a 30% pace in the third quarter but the economy could easily stumble in the fourth quarter if Congress doesn’t get more aid in the pipeline quickly.
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