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Retail Sales Momentum Slows as Pandemic Benefits Expire

Karl Schamotta September 16, 2020

American consumers increased spending in August for the fourth consecutive month, but growth decelerated sharply as enhanced employment benefits expired and government stimulus spending began to slow.

Data released this morning by the Census Bureau show overall receipts rising +0.6% in the month, down from the revised +0.9% increase seen in July – well below market expectations that had been set closer to +1.1%. Sales in the control group – a measure that excludes more volatile categories like gasoline, building materials and autos – dropped -0.1%, also under expectations for a +0.5% increase.

Overall retail spending jumped past pre-pandemic levels in July and is now +2.6% above the volume recorded in August 2019 – but buying patterns have shifted. Sales at non-store retailers (mostly e-commerce stores) are up +22.4% year-over-year, and card payment data show the clothing, health and beauty, transportation and travel categories suffering big losses, while specialty groceries, toys, electronics, and home products have seen substantial gains.

Government support payments, and a substantial increase in the savings rate through the spring and summer left many households with increased spending power as shutdowns were lifted. But that “dry tinder” is likely to shrink in the months ahead as benefits expire and income continues to suffer. Despite a rapid improvement in industrial production and other supply-side measures of growth, there are 11.5 million fewer jobs than in February and the 8.4% unemployment rate is well above the 3.5% level that prevailed before the pandemic struck. Consumer sentiment is improving, but remains distinctly depressed – and politicians in Washington appear unlikely to approve additional stimulus until after November.

The dollar rose slightly on the release, but remains under pressure ahead of this afternoon’s Federal Reserve meeting – the last to come before the election and the first since the central bank adopted its new, more inflation-tolerant monetary policy framework. Officials are broadly expected to issue a more optimistic set of economic forecasts, adjust statement language that currently refers to a “symmetric” inflation objective, and strengthen a commitment to holding rates near zero for a prolonged period of time. But with policymakers prizing optionality at this point in the cycle, those hoping for more explicit forward guidance may be disappointed.
Karl Schamotta
Chief Market Strategist

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