U.S. retail sales accelerated in September, rounding out a strong quarter of economic activity, but the recovery from the COVID-19 recession is at a crossroads as government money runs out and companies continue to layoff workers. New coronavirus cases are also surging across the country, which could lead to restrictions on businesses like restaurants, gyms and bars, and undercut consumer spending. The economy is already shifting into lower gear. Other data on Friday showed an unexpected drop in production at factories last month.
“Although sales growth is strong, it will slow through the rest of this year and into next year,” said Gus Faucher, chief economist at PNC Financial in Pittsburgh, Pennsylvania. “The slowing will be even larger if Congress does not pass another stimulus bill. Unemployment remains pervasive throughout the U.S. economy.”
Retail sales jumped 1.9% last month as consumers bought motor vehicles and clothing, dined out and splashed out on hobbies. That followed an unrevised 0.6% increase in August. Economists polled by Reuters had forecast retail sales would rise 0.7% in September. Retail sales have bounced back above their February level, with the pandemic boosting demand for goods that complement life at home, including furniture and electronics. Sales rose 5.4% on a year-on-year basis in September.
Retail sales account for the goods component of consumer spending, with services such as healthcare, education, travel and hotel accommodation making up the other portion.
Excluding automobiles, gasoline, building materials and food services, sales increased 1.4% last month after a downwardly revised 0.3% drop in August. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product. They were previously estimated to have dipped 0.1% in August.
Economists have attributed the strength in retail sales to fiscal stimulus, especially a weekly subsidy paid to tens of millions of unemployed Americans. September’s robust retail sales reinforced expectations for record consumer spending and economic growth in the third quarter.
Online and mail-order retail sales rose 0.5%. Furniture store sales gained 0.5%. Sales at sporting goods, hobby, musical instrument and book stores rebounded 5.7%. These categories notched big year-on-year increases in September, which economists said showed the uneven impact of the recession.
The White House and Congress are struggling to reach a deal on another rescue package for businesses and the unemployed. The government reported on Thursday that new claims for unemployment benefits increased to a two-month high last week.
Some economists believe that historic savings could cushion consumer spending in the absence of more financial aid from the government. Others, however, caution that rising COVID-19 infections and job losses could encourage some consumers to hunker down and conserve savings.
U.S. retail sales blow past expectations; outlook cloudy, Reuters, Oct 16
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