The surprising jump in September retail sales is indicative of how the coronavirus pandemic has distorted spending and consumption patterns. It also obscures the weakness that remains in other sectors of the economy and dwindling resources of many American households.
Census Bureau data found that retail sales rose by 1.9 percent last month, more than double the 0.7 percent average estimated by economists polled by Dow Jones.
“While the topline retail sales figure may look decent, the underlying data underscores the need for additional fiscal support, as the current spending patterns are unlikely to be sustainable,” said Charlie Ripley, senior investment strategist at Allianz Investment Management.
Non-store (ie. e-commerce) sales rose in September, along with building materials and gardening-related goods. Ripley characterized this as a case of diminishing returns. “One specific area like building materials, where spending has been quite robust, is slowing as elevated spending there doesn’t appear to be sustainable,” he said.
Mark Zandi, chief economist at Moody’s Analytics, had predicted 1.5 percent retail sales growth for last month, based on transactions between businesses as well as observations of the myriad and ongoing ways Covid-19 is changing how America lives, works and learns. September sales are usually slow, he said, falling into a trough between back-to-school spending and holiday shopping. This year, with in-person school delayed, relegated to part-time, or shut down in many parts of the country, that spending didn’t take place on its usual timetable.
“Generally, you see a weakening in retail sales in September. This year, you wouldn’t see that due to the shift because of the pandemic,” he said. Zandi added that restrictions on travel, dining, sports and other in-person entertainment are funneling nearly all of the country’s consumer spending into retail goods. “It overstates the strength,” he said, to look at the retail number absent the context of what the country has lost since the pandemic began rippling through the economy in March.
In his town hall Q&A on Thursday night, former Vice President Joe Biden noted the uneven nature of the way the economy has rebounded, with a market-driven “K-shaped” recovery for the wealthy while millions of others, including a vast swath of middle-class and lower-income households, continue to struggle. Part of this is a function of job loss, which struck the services sector harder, especially for industries such as hospitality and leisure that disproportionately employ lower-income and often marginalized workers.
The University of Michigan’s new Survey of Consumer Sentiment also reflects this tension: Respondents’ assessments of current economic conditions fell, but that drop was offset by more optimism about future economic conditions.
“Slowing employment growth, the resurgence in Covid-19 infections, and the absence of additional federal relief payments prompted consumers to become more concerned about the current economic conditions,” chief economist Richard Curtin wrote.
A report from the JPMorgan Chase Institute that analyzed anonymized checking account data of both employed and unemployed customers found that workers without jobs are rapidly losing ground, and their financial instability poses a threat to a broader economic recovery.
Median balances among the unemployed first soared, roughly doubling between March and July, then plunged right at the point when the supplemental weekly $600 in unemployment insurance payments expired. On average, Chase noted that customers burned through two-thirds of those accrued savings in August alone.
The spending of unemployed individuals increased with the arrival of unemployment benefits and decreased upon expiration of the $600 weekly unemployment benefit supplement, Chase analysts wrote.
Economists warn that this is unsustainable. “With signs of the labor recovery slowing, the ability for consumers to spend will slow as well,” Ripley said.
Chase came to the same conclusion in its analysis. “It is clear that the spending of unemployed individuals increased with the arrival of unemployment benefits and decreased upon expiration of the $600 weekly unemployment benefit supplement,” they wrote. “Without further government support or significant labor market improvements, jobless workers may exhaust their accumulated savings buffer, leaving them with a choice to further cut spending or fall behind on debt or rent payments.”
Zandi said these are troubling signs that Americans soon will no longer be willing — or able — to maintain the level of spending that will lift the economy out of recession. “The economy is very fragile, the recovery is still very fragile, the pandemic is still raging and there’s no additional fiscal support coming,” Zandi said. “I think this could be the high water mark for retail sales for a while, and for the border economy.”