All Posts Tagged: U.S. economy
Retail sales increased 1.9% in September, a far stronger pace than economists expected, given tens of millions of Americans remain out of work and supplemental unemployment benefits of $600 a week began to disappear at the end of July.
The surprisingly strong sales gains last month reveal just how much the pandemic and unprecedented government support in an election year has shaken up and disrupted normal consumer spending patterns.
I see the finger prints of pandemic pent-up demand as well as back to school (Fall) demand in the robust increases in clothing (+11.0%), department store sales (9.7%), and sporting goods sales (+5.7%) in September. No doubt rising stock prices and home values are bolstering the wealth and confidence of many higher-income households that have been better able to hold onto their jobs.
Strong monthly sales gains continued for motor vehicles (3.6%), health and personal care (+1.7%), eating and drinking establishments (2.1%), and gasoline stations (+1.5%) as well.
Early pandemic retail favorites like building materials, non-store retailers, groceries stores, and electronics saw weak, flat, or even declining sales last month as consumers increasingly got out and about and shifted their spending toward other neglected spending categories.
While the strength in September retail sales is a welcome development that will undoubtedly increase our real growth forecasts for consumer spending and GDP for the third quarter, I also think this will be one of the better retail sales reports we are likely to see for a while.
Coronavirus cases are surging once again in a majority of U.S. states and we are already seeing a pullback in restaurant reservations and TSA checkpoint visits in October as a result.
Moreover, the retail sales gains since May have largely been the result of government income support, pent-up demand, and the reopening of shuttered businesses. The labor market foundation of recent retail sales gains remain fragile. Job gains are decelerating every month, income growth is slowing, and the personal savings rate is slipping. Long-term unemployment is becoming a bigger problem and we expect permanent scarring of household finances and future job prospects for millions of households.
Thankfully government support from Washington has been more effective than we dared hope back in May with many households using the funds to bolster their savings, pay down existing debts, and refinance their mortgages. As a result, consumer confidence quickly turned a corner in May. However, additional Federal government support will be needed soon if we are to limit the permanent damage to household finances that remains and keep consumer spending growth intact.
In short, as today’s surprisingly weak 0.3% manufacturing production drop for September highlights, the U.S. economic and labor market recovery from the pandemic remains a partial and fragile recovery that falls well short of what is needed to return to normal. Motor vehicle production has dropped for two consecutive months now, and production declines were also seen in machinery and computer and electronics last month.
The easy reopening gains for U.S. manufacturing production may already be over. Payrolls for goods (-4.9%) and service (-6.6%) businesses remain well-below year ago levels and are not expected to fully recover for years, highlighting the longer-term damage still hanging over the economic outlook.
To learn more, check out this week’s U.S. Outlook Report.
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Another large drop in the U.S. unemployment rate in August was the biggest surprise coming out of today’s employment report. The big decline in the unemployment rate, another sizable 1.37 million net job gain last month, and better than expected average hourly earnings growth, bolsters confidence in the sustainability of this expansion despite growing signs […]Read More ›
Like a mid-summer thunderstorm approaching from the West, dark clouds are beginning to build on our economic and financial horizon yet again.
It’s still too early to know whether we will be hit by an imminent downpour or not. A last minute economic rescue package in the $1 to $2 trillion dollar range from Congress before the end of July could help keep the storm clouds at bay until the end of the year, but the increasing virus case count is already doing some material damage to the pace of the economic recovery in my opinion.Read More ›
What is the old phrase, you can lead a horse to water but you can’t make him drink? Using that analogy, the Federal Government and Federal Reserve have been pumping an unprecedented amount of water into our economy, trying to entice consumers back into stores and restaurants, and resume their old patterns of spending once businesses are able to reopen. That reopening started in nearly all 50 states in May and we got an important update on how it’s all going this morning with the release of the May Personal Income and Spending report from the Bureau of Economic Analysis.Read More ›
The May Employment Report released this morning from the Bureau of Labor Statistics captured more of the economic reopening than we expected, allowing for a surprising 2.51 million gain in nonfarm payrolls and a drop in the unemployment rate to 13.3% from 14.7% in April.Read More ›