In this news, we discuss the U.S. retails sales blow expectations in September; dark clouds gathering.
WASHINGTON (Reuters) – Retail sales in the United States accelerated in September, supplementing a good quarter of economic activity, but recovery from COVID-19 recession is at a crossroads as government money is running out and companies continue to lay off workers.
New cases of the coronavirus are also on the rise across the country, which could lead to restrictions on businesses such as restaurants, gyms and bars, and slash consumer spending. The economy is already shifting down a gear. Other data from Friday showed an unexpected drop in production at factories last month.
“While sales growth is strong, it will slow down for the rest of the year and into the next year,” said Gus Faucher, chief economist at PNC Financial in Pittsburgh, Pa. “The slowdown will be even greater if Congress does not pass another stimulus bill. Unemployment remains pervasive throughout the US economy. “
Retail sales jumped 1.9% last month as consumers bought cars and clothing, ate out of restaurants and passed out hobbies. This followed an unrevised increase of 0.6% in August.
Economists polled by Reuters had forecast retail sales to rise 0.7% in September. Some have said the September outbreak was likely exaggerated by the difficulty in eliminating seasonal fluctuations in data after the shock caused by COVID-19. Unadjusted retail sales fell 2.8% after falling 1.0% in August. (Chart: retail sales,)
Retail sales have rebounded above their February level as the pandemic stimulates demand for goods that complement home life, including furniture and electronics. An aversion to public transport spurred purchases of motor vehicles. Retail sales increased 5.4% on an annual basis in September.
They represent the goods component of consumer spending, with services such as health care, education, travel and hotel accommodation making up the other part.
Excluding autos, gasoline, building materials and food services, sales increased 1.4% last month after declining 0.3% in August.
These so-called basic retail sales correspond most closely to the consumer expenditure component of gross domestic product. They were previously estimated to have fallen 0.1% in August.
Economists have attributed the strength in retail sales to fiscal stimulus, particularly a weekly subsidy paid to tens of millions of unemployed Americans. Strong September sales bolstered expectations for consumer spending and record economic growth in the third quarter.
Growth estimates for the July-September quarter reach an annualized rate of 35.2%. This would recover about two-thirds of the production lost due to COVID-19. The economy contracted at a rate of 31.4% in the second quarter, the largest drop since the government began keeping records in 1947.
U.S. stocks have rebounded after three straight days of losses on retail data and Pfizer’s announcement that it could request emergency use of its COVID-19 vaccine candidate as early as November.
LARGE SALE GAINS
Last month, auto dealer sales jumped 3.6%. Receipts from restaurants and bars increased 2.1%. Receipts at clothing stores jumped 11.0%.
“Some of the gain may have reflected increased demand for back-to-school sales, but with most distance learning schools, the reported strength seems dramatic and likely unsustainable,” said Kevin Cummins, chief economist of the United States. United at NatWest Markets in Stamford, Connecticut.
Despite the gains recorded in September, sales of bars, restaurants and clothing stores remain well below their pre-pandemic levels.
Purchases at electronics and appliance stores fell 1.6%.
Online and mail order retail sales increased 0.5%. Sales at furniture stores increased 0.5%. Sales at sporting goods, hobby, musical instrument and book stores rebounded 5.7%. These categories saw sharp year-over-year increases in September, which economists said showed the uneven impact of the recession.
“This is further proof of the number of top earners who have managed to avert the pandemic by working from home, while most of the lowest paid workers have been forced to choose between jobs that put them at risk, when ‘they can find them, and unemployment,’ said Chris Low, chief economist at FHN Financial in New York City.
The White House and Congress are struggling to come to an agreement on another bailout for businesses and the unemployed. The government reported on Thursday that new claims for unemployment benefits hit a two-month high last week.
Last month’s surge in retail sales put consumer spending on a higher growth path heading into the fourth quarter, which will likely ensure that the economy continues to grow, albeit at a moderate pace. Growth estimates for the fourth quarter have been slashed to as low as 3% from over 10%.
Some economists believe historic savings could dampen consumer spending in the absence of increased government financial assistance. Others, however, warn that the increase in COVID-19 infections and job losses could encourage some consumers to curl up and save their savings.
A University of Michigan survey on Friday showed consumer sentiment edged up in early October.
Consumers, however, were concerned about current economic conditions due to “slowing job growth, the resurgence of COVID-19 infections and the lack of additional federal relief payments.”
They were less enthusiastic about buying household appliances. The share of those who thought it was a good time to buy a car was the lowest in nine years.
(Graph: consumer sentiment,)
Reporting by Lucia Mutikani; Edited by Chizu Nomiyama, Paul Simao and Andrea Ricci
Original © Thomson Reuters