U.S. Retail Sales Surprise Up With Strong Economic Recovery

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  • Retail sales rise 0.7% in August
  • Core retail sales increase 2.5%; July revised downwards
  • Weekly jobless claims increase from 20,000 to 332,000

WASHINGTON, Sept. 16 (Reuters) – Retail sales in the United States unexpectedly rose in August, likely boosted by back-to-school purchases and government child tax credit payments, which could temper the expectations of a sharp slowdown in economic growth in the third quarter.

The surprise rebound in retail sales reported by the Commerce Department on Thursday defied falling consumer confidence. Sales were driven by an increase in online shopping, which offset a continued decline at car dealerships. But sales in July were much lower than initially estimated.

Economists lowered their gross domestic product estimates for the current quarter, citing slump in motor vehicle sales, which are the result of a severe shortage of inventory, and a spike in COVID-19 infections fueled by the Delta variant of the coronavirus.

“US consumption is not slowing down as quickly as it appeared a month ago despite the decline in the stimulus, and the Delta variant has not significantly affected the industries fueling retail sales,” said Chris Low, chief economist at FHN Financial in New York. “The economy continued to buzz in August.”

Retail sales rose 0.7% last month. Data for July has been revised down to show that retail sales fell 1.8% instead of 1.1% as previously reported. Economists polled by Reuters predicted retail sales would fall 0.8%. Sales are up 15.1% from a year ago and are 17.7% above their pre-pandemic level.

They resist even as spending shifts from goods to services like travel and entertainment. Retail sales are primarily goods, with services such as healthcare, education, travel, and hotel accommodation making up the remaining portion of consumer spending.

Online retail sales rebounded 5.3% after falling 4.6% in July. Most school districts started their 2021-2022 school year in August, with in-person learning resuming after last year’s switch to online classes due to the pandemic.

In mid-July, eligible households began receiving money under the Expanded Child Tax Credit program, which will run until December. Clothing store sales edged up 0.1% last month. Receipts at building supplies and furniture stores rose sharply.

But auto dealer sales fell 3.6% after falling 4.6% in July. A continuing global shortage of microchips is forcing automakers to cut production.

The semiconductor crisis, which has been made worse by the latest wave of COVID-19, is also causing shortages of some electronics.

There are also traffic jams at ports in China. Sales at electronics and appliance stores fell 3.1%. There was also a decline in receipts at sporting goods, hobby, musical instrument and book stores.

With the surge in coronavirus infections, the flow of traffic to restaurants and bars has declined, keeping sales flat. Restaurants and bars are the only category of services in the retail sales report.

Excluding autos, gasoline, building materials and food services, retail sales rebounded 2.5% last month after declining 1.9% in July.

These so-called basic retail sales correspond most closely to the consumer expenditure component of GDP. They were previously estimated to have fallen 1.0% in July.

People wearing face masks shop in Macy’s Herald Square after the coronavirus disease (COVID-19) outbreak in the Manhattan neighborhood of New York City, New York, United States, December 26, 2020. REUTERS / Jeenah Moon / File Photo

Wall Street stocks were trading lower. The dollar (.DXY) appreciated against a basket of currencies. US Treasury prices have fallen.

GROWTH ESTIMATES

The National Retail Federation said the surge in sales despite the headwinds reflected the continued strength of the U.S. consumer and the resilience of retailers across the country.

“We maintain our confidence in the historic strength of consumers and fully look forward to a banner year for retail sales and a strong holiday season for retailers,” said NRF President Matthew Shay.

Americans are sitting on at least $ 2.5 trillion in surplus savings accumulated during the pandemic. Wages are rising as companies scramble to fill a record 10.9 million vacancies.

On Thursday, a separate report from the Department of Labor showed initial claims for state unemployment benefits increased by 20,000 to seasonally adjusted 332,000 for the week ended September 11.

The claims were likely amplified by Hurricane Ida, which devastated U.S. offshore power generation and cut power to Louisiana. Ida also flooded the Mississippi and caused historic flooding in New York and New Jersey.

The number of people continuing to receive benefits after a first week of aid fell from 187,000 to 2.665 million in the week ended September 4, the lowest level since mid-March 2020. The expiration of the Federally funded benefits earlier this month is expected to increase the labor pool.

“There is no evidence here that the surge in COVID cases linked to the Delta variant is forcing an economic downturn,” said Conrad DeQuadros, senior economic adviser at Brean Capital in New York City.

A third report from the Philadelphia Federal Reserve showed that its business activity index jumped to 30.7 in September from 19.4 in August. A reading above zero indicates manufacturing growth in the region, which covers eastern Pennsylvania, southern New Jersey, and Delaware.

Manufacturers have signaled moderation in input prices, which matches recent data suggesting inflation has likely peaked. They also increased hours for workers as they struggled to find manpower. Although expectations have moderated, manufacturers were optimistic about economic conditions over the next six months.

Slowing motor vehicle sales and difficulties for businesses to rebuild their inventories prompted economists to lower their GDP growth estimates for the third quarter. A fourth Commerce Department report on Thursday showed inventory build-up slowed in July. Read more

JPMorgan economists on Wednesday again cut their GDP growth forecast for the third quarter to an annualized rate of 5.0%, from 7.0%. The Federal Reserve’s “Beige Book” report last week showed that “economic growth slowed slightly to a moderate pace from early July to August.”

But after the release of the retail sales report on Thursday, economists at Morgan Stanley raised their estimate of third-quarter GDP growth to 5.0% from 3.3%. Goldman Sachs raised its forecast at a rate of 4.5% from 3.5%, after lowering it to 5.25% earlier this month.

The economy grew at a rate of 6.6% in the second quarter.

Reporting by Lucia Mutikani Editing by Chizu Nomiyama and Paul Simao

Our Standards: The Thomson Reuters Trust Principles.

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