By Josh Mitchell and Suzanne Kapner
Americans' shopping surpassed pre-pandemic levels last month,
but the U.S. economy still faces threats as it digs out of a severe
recession.
Retail sales -- reflecting what households spent at service
stations, stores, restaurants and online -- rose 1.2% in July, the
Commerce Department said Friday. That marked the third consecutive
monthly gain as the U.S. strived to reopen its economy as much as
possible despite the challenges posed by the coronavirus
pandemic.
After accounting for seasonal factors, sales were 1.7% higher
compared to February, the month before the pandemic shut down much
of the economy. Consumers last month boosted spending on
electronics and appliances, health products and restaurant
meals.
More recent evidence suggests households moderated spending in
certain areas. One factor: the July 31 expiration of an enhanced
unemployment benefit. That benefit, authorized in the Cares Act
passed by Congress in March, had boosted jobless workers' weekly
income by $600 a week, and many households spent it.
Facing a congressional deadlock over a new stimulus plan,
President Trump has acted to replace the payments with a
$300-a-week benefit, but it isn't expected to reach workers for
weeks.
"There's a lot of talk about the recovery as if they've declared
the recession dead already," said Amy Crews Cutts, head of the
consultancy AC Cutts & Associates. "I think we are not clear
from a recession, and the stops and starts that are happening in
the economic opening at the state level are showing a fragility in
the economy."
Many economists expect the economy to rebound this quarter after
gross domestic product fell 9.5%, or 32.9% at an annual rate, in
the second quarter. Economists expect output to grow at an 18.3%
annual rate in the third quarter, according to a Wall Street
Journal survey.
Other data suggest the economy is growing. Industrial
production, a measure of output at factories, mines and utilities,
rose 3% in July from June, the Federal Reserve said Friday, after a
5.7% rise in June.
The economy has added millions of jobs in the past three months,
including 1.8 million in July. Initial jobless claims, a proxy for
layoffs, fell below 1 million last week for the first time since
March. Still, layoffs remain exceptionally high, employment is down
by nearly 13 million from February, and the jobless rate stood at a
historically high 10.2% in July.
In the world's largest economy, consumers are paramount. Their
spending reflects more than two-thirds of economic demand. Retail
spending, which excludes costs like utilities and rent, represents
a big chunk of all consumer spending.
A rise in coronavirus infections in several big states earlier
this summer prompted a new round of restrictions on businesses and
spooked many consumers back into their homes. The prospect of
schools moving teaching online this fall may also undermine
back-to-school spending.
"Many households are now being more cautious now that enhanced
unemployment benefits have dried up," said Neil Saunders, a retail
analyst for the research firm GlobalData.
Only 36% of consumers tracked by GlobalData spent more or the
same amount on retail purchases during the first week of August as
they did the same week a year ago. That is down from 57% who did so
during the last week of June. Separate data show consumers cut
credit-card spending in stores in late July and early August,
compared with year-earlier levels, according to data from Earnest
Research. Restaurant spending also lost momentum in recent days,
OpenTable data show.
The data firm Affinity Solutions, which analyzes credit-card
spending, said overall retail spending, excluding car purchases,
rose in early August compared to July, though consumers cut back on
certain categories such as furniture, health-care products and
construction materials.
Foot traffic to retail stores declined six weeks ago, coinciding
with the receipt of the last batch of stimulus checks, a separate
part of the pandemic relief unrelated to the added unemployment
benefits, according to Aneta Markowska, the chief financial
economist at Jefferies Group LLC. The firm parses data from
location-tracking company SafeGraph Inc., and since then has found
that foot traffic has remained fairly steady, despite the end of
the additional unemployment benefits.
Shawn Hall spent her $1,200 stimulus check as soon as she
received it in April on bills and rent. Since the pandemic started,
the 48-year-old Charlotte, N.C., resident has been earning less as
a self-employed education consultant, and she is hoping Congress
passes another round of stimulus spending to help her make ends
meet. Meanwhile, she has cut back on dining out and Starbucks
lattes, opting to make coffee at home.
The $600 weekly unemployment benefit expired July 31. That had
funneled $250 billion to families this spring, according to a Wall
Street Journal analysis. Last week, President Trump announced a
series of executive actions that, among other things, would
continue to provide an enhanced jobless benefit to Americans.
Even with that action, Ms. Markowska expects spending to decline
in August since it could take weeks to get the checks out. "Even
though the payments will be retroactive, it will be too late to
salvage August," she said.
Consumer spending has held up. One big factor is that aggregate
household income has actually grown since the pandemic began in
March, boosted by federal stimulus checks of as much as $1,200 for
individuals and the enhanced unemployment benefit.
Many households have used that money to pay bills and build up
savings, with the personal savings rate soaring. As the
pandemic-related shutdowns have extended for months, consumers have
started to spend some of their money, particularly on big-ticket
items and projects like refurbishing their homes.
Business has been steady for Joff Masukawa, a self-employed
life-sciences consultant in his 50s from Washington, D.C. He bought
a 1950s ranch-style house in Laurel Park, N.C., in May so that his
mother could move out of a senior-living community. He is
renovating the house and in July bought a refrigerator, stove,
dishwasher and microwave.
Mr. Masukawa said he is still spending a bit less than he was
before the pandemic. "What I'm not buying are clothes," he said.
"I'm not buying anything going out to eat. I'm not going to bars.
The only entertainment we spend money on is really cable-internet
service and then the various streaming things."
He also suspended his gym membership and, for exercise, recently
bought the Mirror, a product that displays an exercise routine.
--David Harrison contributed to this article.
Write to Josh Mitchell at joshua.mitchell@wsj.com and Suzanne
Kapner at Suzanne.Kapner@wsj.com
(END) Dow Jones Newswires
August 14, 2020 18:31 ET (22:31 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.