All Posts Tagged: U.S. Outlook

September Retail Sales Come Roaring Back

Scott Anderson
Chief Economist

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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Consumer Spending Rebound at a Crossroads

Scott Anderson
Chief Economist

In many ways the consumer is the U.S. economy.

Real consumer spending comprises about 70% of U.S. GDP, so if you can accurately forecast where the consumer is going, you have a pretty good idea the rest of the U.S. economy will follow. Personal consumption expenditures is a broad measure of consumer spending, including spending categories not included in the monthly retail sales reports like spending on services like health care and education.

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September Employment Lands Short of the Mark

Scott Anderson
Chief Economist

The September jobs reports brought more troubling signs that the labor market rebound that began in earnest in May as furloughed workers returned to work and peaked in June with a one month 4.78 million job gain is rapidly petering out as winter approaches.  

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A Fragile Manufacturing Recovery

Scott Anderson
Chief Economist

With the onset of the pandemic, the manufacturing and service sectors were both hit incredibly hard. According to the Federal Reserve, U.S. manufacturing production declined at a 47% annualized rate in the second quarter, while the latest GDP report revealed an unprecedented 43.1% annualized decline in real consumer spending on consumer services in the second quarter.

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Another Downside Risk Emerges

Scott Anderson
Chief Economist

Congress has just five days to pass another rescue aid package before they are off to campaign for the November election, leaving very little time to overcome an impasse that has unexpectedly stalled the measure in Congress.

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