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Here’s Why US Retail Sales Growth Has Cooled—and Could Get Worse

The expiration of the federal unemployment benefits supplement for workers in July cooled the pace of U.S. retail sales growth in August, which rose a seasonally adjusted 0.6 percent from the previous month.

That increase was still 2.6 percent above last year’s August, and it represented the fourth straight gain in retail sales since tanking in April at the height of the coronavirus outbreak.

But last month’s 0.6 percent gain also missed the consensus economist estimate of 1 percent. Economists had already expected a slight decrease in growth from July’s 1.2 percent due to the expiration of federal benefits.

“August was topsy-turvy as Covid-19 brought a lot of shifts and uncertainty regarding back-to-school spending and other issues but consumer spending remains intact even if sales grew less than July,” NRF chief economist Jack Kleinhenz said. “Retail spending habits have remained largely consistent and stable these past few months since stores began to reopen. Some consumers likely reduced their spending with the end of the $600 supplemental unemployment benefits for those out of work, but a building-up of savings from that and other government cash helped support spending.

“At this juncture, it is difficult to sort out how much economic activity is due to government support and how much is evidence of hardcore demand due to recent job gains,” Kleinhenz added. “August numbers might have been higher if not for small businesses struggling with reopening and the return to full operations.”

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For now, the 0.6 percent growth rate suggests the rate of recovery is slowing as the overall Covid-19 situation across the U.S. isn’t showing much improvement, despite some declines in infection-rate trends. Whether Congress and the Trump administration will be able to agree on a new relief spending before the upcoming U.S. election in a little over six weeks remains to be seen. And even then, there’s still much uncertainty ahead. With many schools and universities reopening for in-classroom instruction for the new school year, there’s a feeling that a rise in new infections among students could occur over the next few weeks. Whether those increases also give rise to some form of community spread remains a concern.

Meanwhile, retail trade sales increased 0.1 percent from July 2020, and were 5.1 percent above August 2019. Non-store retailers rose 22.4 percent from August 2019, while apparel and accessories stores were down 20.4 percent from last year’s figures, the U.S. Census Bureau said Wednesday. Sales at department store retailers fell 16.7 percent to $9.63 billion from $11.55 billion in August 2019.

By segment, seasonally adjusted sales at department stores fell 2.3 percent to $9.40 billion in August from $9.63 billion in July. Sales at apparel and accessories stores, including footwear retailers, rose 2.9 percent to $17.73 billion in August from July’s $17.23 billion. Perhaps most interesting were sales at non-store retailers, such as e-commerce sites, which were essentially flat at $83.14 billion in August and $83.12 billion in July. Despite talk about a rise in digital sales, the August report indicates a slowdown from the 0.7 percent rise in July to $84.04 billion from June’s sales figure.

“Clothing store sales climbed 2.9 percent in August, but the category is still off 20 percent from its high—putting it in last place among major store types in a ranking of the post-COVID rebound,” Tim Quinlan, senior economist at Well Fargo, said.

What also could impact future U.S. retail sales data is the rate of first-time filers for state unemployment benefits. After falling to 963,000 for the week ended Aug. 13, the first time that initial filings were below 1 million since mid-March, the number of claims ticked up to just over 1.0 million for the week ended Aug. 27 and have since settled in the 884,00 range for the last two weeks. But coming up could be more filings for unemployment benefits from the airline industry as companies such as American Airlines and Delta threaten job cuts in the tens of thousands if a new pandemic relief package fails to materialize. The current aid package expires on Sept. 30.

“While August retail sales numbers were a bit mixed, we believe the consumer is resilient and is in good shape as we head into the holiday season,” NRF president and CEO Matthew Shay said. “Over the past several months, consumers have responded well to federal relief measures that have supported the recovery, so it comes as no surprise that they would take a pause on spending as some of these programs tapered off at the end of July. We continue to advocate for additional stimulus measures to help the economy recover. With the holidays quickly approaching, our retailers are prepared to serve customers to meet all of their holiday needs and are embracing the new holiday tradition of shopping early.”