Americans increased their spending at retail stores and restaurants in July for a third straight month, but some evidence suggests that sales are weakening with the expiration of government rescue aid that had previously put more money in people’s pockets.
Friday’s report from the Commerce Department showed that retail purchases rose by a seasonally adjusted 1.2% last month. The gains of the past three months have now restored retail purchases to their levels before they plunged in March and April, when the pandemic shuttered businesses and paralyzed the economy.
Yet with Americans’ overall income now likely shrinking, economists expect spending to slow further. July’s sales increase was much smaller than May’s 18.3% gain and June’s 8.4% increase, when shoppers flocked to newly reopened businesses. In July, the viral outbreak re-surged in much of the nation, forcing some businesses to shut down again.
Sales at restaurants and bars grew 5% last month after much more robust increases of more than 30% in May and 27% in June. Restaurant and bar revenue remains about one-fifth below its levels of a year ago. Solid sales gains were posted at electronics and appliances stores, reflecting the needs of mostly higher-income people who are now working from home. Purchases at clothing stores, gas stations, and drugstores also rose. Furniture sales were flat after a huge gain in June.
But roughly 28 million laid-off workers are no longer receiving a $600-a-week federal unemployment check that they had been getting in addition to their state benefit, but which lapsed last month. In addition, a $1,200 stimulus check that was sent to many Americans in April and May likely won’t be repeated. Negotiations in Congress on a new economic relief package have collapsed in rancor and show no sign of restarting anytime soon.
Many retailers have said the supplemental unemployment aid had helped spur sales of clothes and other non-discretionary items in the spring and early summer.
“Consumers have been largely shielded from economic realities by the various stimulus and benefit programs,” said Neil Saunders, managing director of GlobalData Retail. “However, many of those advantages expired at the end of July, and August will be the first month when the chill winds of economic turmoil hits many households.”
Consumers had started to cut back on spending in late July, according to a GlobalData survey, and spending fell sharply in the first week of August. Many consumers are spending more around the home and on recreational equipment while still maintaining a nervous outlook.
Friday’s report on retail sales captures only about one-third of all consumer spending. The rest involves services — from haircuts and gym memberships to hotel rooms — all of which were hit disproportionately hard by the pandemic and have yet to recover
In the April-June quarter, consumer spending collapsed by a record amount, causing the economy to shrink at a previously unheard-of annual rate of 32.9%. Economists have forecast that growth is rebounding in the July-September quarter at a roughly 20% annual rate, though that pace would still leave the economy far below pre-pandemic levels.
The government’s figures mask a huge shakeout in the retail industry, with Americans pulling sharply back on in-person shopping and spending more online. More than 40 retailers have filed for bankruptcy protection this year, about half of them since the pandemic. That’s about double the number for all of 2019.