Can US retail sector’s ‘V-shaped’ rebound jump the fiscal cliff?
Even with nearly a fifth of the labour force collecting unemployment benefits in July, Americans continued spending with relative gusto, driving retail sales back again to pre-coronavirus levels because they shifted shopping online, brought their food home, and stocked through to new appliances.
The downside: It was government money they spent, and that is now drying up even while a recently available spate of unexpectedly upbeat financial data - including a larger-than-expected rise in payrolls last month and the first drop below 1 million in weekly new jobless claims since March - takes the pressure off Congress to renew the unemployment benefit supplement and business loan programs that ended last month.
The dilemma is a stark one as america ends its first half-year of pandemic confusion. May be the economy coming back as consumers and businesses figure out how to live with new health risks, or nearing a more serious nosedive?
Consumer spending drives about two-thirds of the united states economy, and the July numbers "are encouraging because they suggest the recovery has continued to grind on even in the actual fact of the resurgence in virus cases," wrote Michael Pearce, senior US economist for Capital Economics.
Though the loss of unemployment income, if it persists, "poses a downside risk to spending in the near term ... consumption growth will recover slowly but surely from here."
Oxford Economics senior US economist Lydia Boussour, in comparison, called the July number "sobering" since it was below expectations, and signaled consumers were already growing cautious through July as the growth in coronavirus cases rebounded plus some states imposed new restrictions, unemployment remained high, and the expiration of government benefits approached.
The 1.2% jump in retail sales was "only half the expected gain," she wrote, and "underscores that wary consumers have turned more cautious ... The recovery in consumption ... will be restrained by income cliffs and renewed virus fear."
Those two views - of a recovery grinding ahead as people adapt and health risks are gradually controlled, or of massive family and business failures soon - are at the main of a stalemate in america Congress that saw lawmakers head home until September without sign of progress on a new stimulus package.
Which makes August a test of whether daily growth in coronavirus cases will continue a recently available decline even while some schools and colleges reopen, if the economy will continue to grow despite the health threats, and whether unemployed Americans have managed to put enough in the lender to have them through until their jobs return.
The extra $600 weekly in unemployment benefits paid from roughly April through July, along with loans to businesses, led to a record upsurge in personal savings and allowed some households to lower debts. Some Federal Reserve officials have noted that puts "firepower" in the hands of businesses and households that could tide them over for some time.
Recent data through July, for instance, showed overall bankruptcies down 25% over the same seven-month period in 2019.
However the vice may tighten fast. A moratorium on evictions has expired: that means grim choices ahead for families that had used rent money for food or other purchases lately.
And the facts of the spending report show similarly tough decisions for others, particularly those among the millions who've been laid off from restaurant and hospitality jobs.
High-frequency data has demonstrated that growth in traffic to those types of businesses has plateaued, and the July sales statistic backed that up. Americans got their calories and their beer and wine - but from online orders or directly from grocery and liquor stores, not in restaurants, where spending remained 20% off last July's level.
Which means a different labour market emerging that might need fewer staff than before, no guarantee of a simple transition for those caught in it, and a need for more government help ease the crunch.
The failure to renew benefits will "reverberate over the economy," analysts from the Washington-based Peterson Institute for International Economics said, with a potential $500 billion drop in personal income following the expiration of government programs causing a jump of around 5% in the unemployment rate - back towards the record level hit in April.
The unemployment rate dipped to 10.2% in July after hitting 14.7% in April, with the US economy still about 14 million jobs below where it had been prior to the coronavirus lockdowns began.
Economic policymakers are wary of the evolving dilemma.
"Consumers are still spending," Dallas Fed President Robert Kaplan said on Friday, noting the way the trillions of dollars pumped in to the economy by the massive stimulus package passed by Congress in March and programs from the united states central bank and others "helped make our monetary statistics somewhat better."
Kaplan said he was worried the risks from a lack of benefits are real given the large numbers of unemployed workers.
"I am still concerned how quickly they'll be able to make contact with work," he said. "If they have to shift industries how long which will take ... Not only will you not have employment, will you be in a position to pay the bills?"
