Economic Report: U.S. retail sales climb 1.2% in July and return to precrisis levels, but growth slowing

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The numbers: Sales at U.S. retailers rose modestly in July and returned to precrisis levels, but growth has tapered off since the economy reopened and could soften again in the months ahead in the absence of another major federal-relief package.

Retail sales rose 1.2% in July, the government said Friday. Economists polled by MarketWatch had forecast a 2% advance.

Receipts have slowed from a 8.4% increase in June and a record 18.2% gain in May when an economic rebound began.

Retailers have been on a rollercoaster ride since the pandemic began, sinking in March and April and recovering rapidly in the following two months as the economy reopened.

The more mild increase in sales in July might be a sign of what lays ahead, however.

The spike in coronavirus cases this summer sapped the economy of momentum, delayed the return of people to their jobs and in some cases spurred more layoffs. At the same time, a $600 federal unemployment benefit expired and Washington is deadlocked over another major financial-rescue package for the economy.

The added uncertainty and potential loss of income for millions of Americans still out of work could undercut retail sales and make it harder for the economy to recover from the deepest recession in modern American history.

Read:Did the expired $600 federal jobless benefit keep people from going back to work?

What happened: Sales surged almost 23% at stores such as Best Buy BBY, +2.78% that sell electronics and appliances, marking the third straight strong gain in a row. It’s a good sign for the economy when consumers are buying discretionary items like computers or new fridges.

In another positive sign, spending at bars and restaurants climbed 5% despite renewed restrictions in some states on indoor dining after the resurgence in coronavirus cases. Sales had jumped nearly 27% in June.

What’s more, recent evidence from OpenTable, the restaurant-booking site, suggest diners began to return again in August.

Sales also rose at clothing stores, pharmacies, groceries, Internet retailers and gas stations.

Internet-store receipts rose a meager 0.7%, however, after declining in June. Internet shopping had soared during the pandemic, but it’s possible that flat sales in the past two months is a sign people are buying more products at brick-and-mortar stores.

Gas receipts increased 6.2%, mostly reflecting higher oil prices. Americans aren’t commuting to work or driving out of town as much during the pandemic. Oil prices have partly rebounded from an 18-year low earlier in the year.

Sales fell 1.2% at auto dealers after a string of increases. Car and trucks sales have been surprisingly strong, benefiting from ultra-low interest rates.

Sales also declined at home centers and businesses that sell books, sporting goods and other hobby items.

Read:Jobless claims fall below 1 million for first time since start of coronavirus pandemic

Big picture: The amount of money being spent at retailers is back to precrisis levels owing to massive federal stimulus. Sales in July were 2.7% higher compared to the same month a year ago. Yet sales could slow further in the next few months if the coronvirus keeps spreading rapidly.

A slower recovery, in turn, could force companies to cut jobs and put even more stress on the economy.

Much will depend on how states and the federal government respond. Another federal relief package, for instance, or a lighter state restrictions on business could nurture the recovery.

Market reaction: The Dow Jones Industrial Average DJIA, -0.28% and S&P 500 SPX, -0.20% were set to open lower in Friday trades.