September US retail sales grow at the fastest pace in three months

US retail sales grew in September at their fastest pace in three months even as concerns linger over the economic recovery amid uncertainty about additional stimulus measures.

Retail sales rose by 1.9 per cent last month, driven by strong spending on vehicles, clothing and sporting goods, the commerce department said on Friday. In August sales had increased at a slower rate of 0.6 per cent. Economists were expecting a modest uptick to 0.7 per cent.

The data offer evidence of the resilience of the American consumer, who has driven the recovery throughout the coronavirus crisis on the back of large doses of fiscal stimulus designed to sustain spending. While the government support is now fading, many US households were still able to boost consumption in September. 

“Consumers have built up a huge amount of savings [and thus fuel for spending] helped by the already generous transfer payments from March through July,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group.

Ken Perkins, president of the Retail Metrics consultancy, said the figures were explained in part by consumers redirecting spending from travel, entertainment and other parts of the service economy. “That money is being channelled into the hard goods and retail space,” he said.

The figures pointed to a continued boom in home improvement as Americans spent more time in the house. Furniture spending rose 4.6 per cent year on year while building materials and garden equipment jumped 19 per cent.

Michael Pearce, a senior US economist at Capital Economics, noted that “consumers are substituting additional goods purchases to make up for the ongoing shortfall in non-retail services spending”.

However, “we are wary of getting too carried away when events in Europe serve as a reminder of how quickly a renewed resurgence in virus cases could take hold, which could yet dampen the recovery in the US”, Mr Pearce added. A number of states across the US, including Wisconsin, Ohio and North Carolina, have seen cases go up sharply in recent weeks.

Neil Saunders, retail managing director at the GlobalData consultancy, said that fewer coronavirus business restrictions meant more shoppers were out spending money.

“There is also some early evidence that holiday spending is being brought forward,” he added. “This is both because retailers are promoting offers and deals more heavily and because consumers want to avoid a last-minute rush.”

Sales in those parts of the sector hardest hit by coronavirus picked up from the previous month, although they remained far below normal levels. Department stores and clothing store sales rose 9.7 per cent and 11 per cent month on month, respectively, although they were still down 7.3 per cent and 12.5 per cent from 2019 levels.

Grocery stores, meanwhile, are also continuing to benefit from a decline in spending in restaurants, bars and other “food service” locations, which fell 14 per cent year on year. Food and beverage store sales rose 10.5 per cent year on year.

So-called control sales, which strip out more volatile items such as food, petrol and building materials, rose 1.4 per cent, ahead of expectations for a 0.2 per cent rise, and following a 0.3 per cent drop in August.

Overall, retail sales have recovered the ground lost since the start of the pandemic, even as the labour market still suffers from millions of lost jobs.

The September increase may also be partly attributed to delayed back-to-school shopping, as some states pushed back reopenings, analysts at Jefferies said. They cautioned that without further fiscal support, “the September strength may have been the last hurrah for the consumer this year”.

The retail sales data may offer proof of the solidity of the US consumer, but will probably do little to push Congress and the White House closer towards a deal on further economic stimulus.

Trump administration officials and congressional Democrats have been at loggerheads for weeks over whether to pass a new economic relief package worth as much as $2tn before the election.

Any deal is expected to include new cheques to US households, worth up to $1,200 per individual, and a new round of emergency jobless benefits, which would both sustain consumer spending.

Amid the stalemate, economists have become cautious about the fourth quarter and in particular the crucial holiday shopping season for retailers if household incomes slip in the absence of new fiscal stimulus.

Federal Reserve chair Jay Powell has been arguing for additional aid and warned that too little support for the American economy would create “unnecessary hardship for households and businesses” and be far more dangerous than offering excessive help.

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