California lawmakers on Thursday approved a $35 million program to provide monthly cash payments to qualifying residents, allowing recipients to spend the funds at retail for anything they want to buy.
Unlike past government assistance programs that have limited benefits to food or housing, this one has no restrictions on what recipients can purchase.
The fact that there’s no limit on where the benefits can be spent means recipients can apply it to food and shelter, as well as life’s other necessities, including apparel and shoes.
The vote from California lawmakers came on the same day that parents were expected to receive their payments under President Joe Biden’s expanded federal child care tax credit. While temporary, the payments are seen by some as a form of guaranteed income. And the payments are expected by many to fuel sales in the back half of 2021, particular for the back-to-school shopping season that runs now through September.
Retail research firm Customer Growth Partners is projecting BTS sales to grow 16 percent year-over-year, sending volume to a record $780 billion. Apparel and accessories are expected to be the big winners of the season, followed by sporting goods and home.
Meanwhile, pent-up demand has been bolstering retail sales in the U.S. June department store sales rose to 108 percent of 2019 levels, up from 100 percent in May and 98 percent in April, according to Stephanie Wissink, broadlines research analyst at Jefferies.
“We believe the pull forward of Amazon Prime Day this year to June, compared to July 2019 and October 2020, was likely one driver of the strength, in addition to continued stimulus benefit, and the reestablishment of demand for fashion apparel [and] footwear,” Wissink said.
The analyst said the strength of June’s department store recovery validates department stores’ relevance, while omnichannel improvements—like scaling curbside pickup and ship-from-store—enable the distribution channel to better compete with online retailers.
In general, retail sales rose 0.6 percent month-over-month to $621.3 billion. When compared with June 2020—a time when some retailers were in the early stages of reopening their doors following temporary pandemic lockdowns—sales rose 18 percent.
The Department of Commerce report said sales at apparel and accessories stores rose 2.6 percent from May, but were up 47.1 percent from the year-ago period. Department stores gained 5.9 percent from May, and increased 24 percent from last year’s figures. Nonstore retailers, mostly e-tailers, saw June sales rise 1 percent from May and up 12 percent from a year ago.
National Retail Federation (NRF) said sales for the first six months of the year were up 16.4 percent over the same year-ago period. “We’re continuing to see an impressive recovery,” said Jack Kleinhenz, chief economist for the retail trade group. “The economy and consumption are particularly sensitive to government policy, and the boost we saw from government support earlier in the year is continuing to show benefits. Reopening of both stores and the overall economy has progressed, and even higher prices seen in some retail categories reflecting the push-and-pull of supply chain challenges haven’t proven to be a deterrent to spending.”
While some believe retail sales should fare well this year as more Americans get their jab, the vaccination program didn’t meet Biden’s plan to have July , as the target date for a return to pre-pandemic normalcy. A number of states have eased restrictions and many workers are expected to return to their offices in September, but there are still many Americans who have yet to get their shots. And concerns are rising that once people have updated their wardrobes and they feel more comfortable getting out and about that they’ll start applying some of their discretionary funds to experiences instead of goods like apparel.
In the meantime, governmental programs such as the temporary expansion of child tax credits and the new state-funded guaranteed income plan from California could also help spur continued spending at retail, such as for apparel and shoes. California’s program is aimed at helping recipients—like pregnant women and young adults fresh out of foster care—reduce the stresses of poverty. While local governments will apply to participate so they can run their own programs, it will be up to the state’s Department of Social Services to determine who will get funding. Current programs provide monthly payments ranging from $500 to $1,000.
Guaranteed income support programs are part of a social movement that falls under the general rubric known as universal basic income (UBI), which refers to regular cash payments to a set group. UBI is somewhat controversial as critics say it leaves little incentive to work and keeps recipients dependent on the government. Yet, at the same time many agree that something needs to be done to help people who are near or below the poverty line. The fact that California’s new program does away with limitations on how benefits are spent is more an evolution of past programs, and could be used as a test for other states.