The Census Bureau released estimates of July’s retail sales on Friday morning and they showed a continued, though much slower, rise in sales. Retail sales rose 1.2 percent from June, on a seasonally-adjusted basis, and 2.7 percent from last July. This doesn’t mean the economy has recovered fully — the retail sales report largely covers sales of goods, and services have been hit harder than goods in this economic crisis — but this report is another data point showing that the economic recovery has slowed, without going into reverse, yet.
That said, the nature of consumer spending on goods is still far from normal. Americans spent 19 percent less at restaurants and bars this July than they did last July. Spending at clothing and accessories stores was down 21 percent, and spending at gas stations was down 16 percent, due to a combination of lower gas prices and still-reduced driving. But while sharp spending declines in these categories (and in travel) was combining with robust government aid to drive extremely high household savings rates in the spring, by July consumers were increasingly offsetting that missing spend by spending more than normal in other parts of the economy. Retail categories posting big gains over last July included non-store retailers like Amazon (up 25 percent), grocers (up 11 percent), building material and garden stores (up 15 percent), and sporting goods, hobby, musical instrument and book stores (up 18 percent). It appears that Americans have reacted to the unavailability of restaurants and travel, and to their reduced need for new clothes when working from home, by cooking more and finding more projects, from gardening to jigsaw puzzles, to do at home.
A key question for the consumer spending outlook is what the effect the failure of Washington lawmakers to agree on an additional economic relief package will have. The economic relief funds from the CARES Act were a key booster of consumer activity during the spring, with Walmart reporting a surge in consumer spending on discretionary products like televisions and apparel after stimulus payments started arriving in Americans’ bank accounts around Easter. Without another stimulus bill, there won’t be another round of those payments, and the large number of Americans still out of work due to the pandemic won’t be getting enhanced unemployment benefits as they were through July. That could make it much harder for households to continue spending like the economy is almost normal.
The president’s executive orders from last week purport to address these problems by repurposing disaster relief funds to enhance unemployment benefits and delaying collection of payroll taxes, but legal and administrative problems with those actions make them unlikely to materially affect the finances of most Americans — few people will get enhanced unemployment payments anytime soon, and companies are unlikely to take up the government’s offer to defer employees’ payroll taxes; even if employees do get these taxes deferred, they will have to make up the payments next year anyway.
Because household savings were so far above normal in the spring, many households have some cushion to keep spending for some time; the relief payments that were received but not spent in the spring can do something to keep stimulating the economy in the summer. But as more weeks pass, consumer spending cannot stay normal while employment is far below normal, absent extensive government aid. And if retail sales start to contract again, that will only make it harder for more Americans to go back to work when virus conditions make it feasible to do so, as retailers and manufacturers without customers will be reluctant to hire workers. So the failure to provide support payments now threatens the path toward a self-sustaining economic recovery in the future.