Economic Advisor August 2020

Retail Sales

Retail sales increased for the third month in a row in July, but at a slower than expected pace. Retail transactions hit $536.0 billion for the month, which was 1.2 percent higher than June, and 2.7 percent more than July 2019, the Census Bureau reported last week.

That said, this was down from an 8.4 percent gain in June, and off from economists' forecasts of a 1.9 percent increase for the month.

July's gains were chiefly driven by sales at electronics and appliance stores, which shot up 22.9 percent (likely for school purchases); gas stations, which grew 6.2 percent; miscellaneous in-store retailers, which also gained 6.2 percent; clothing and clothing accessories stores, which increased 5.7 percent; and food services and drinking places, which rose 5 percent.

So the question is if unemployment remains dire and credit card sales are down, what is driving this retail activity?

"Consumers have been largely shielded from economic realities by the various stimulus and benefit programs," Neil Saunders, managing director of GlobalData Retail, told the Associated Press. "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."

Initial Jobless Claims

For the first time since COVID-19 impacted the economy back in March, fewer than 1 million people filed for unemployment benefits in a week.

First-time claims for unemployment benefits filed by recently unemployed Americans during the week ending Aug. 8 declined to 963,000, a drop of 228,000 claims from the preceding week's total of 1,191,000, the Employment and Training Administration reported last week.

The four-week moving average - regarded as a more reliable measure of jobless claims - fell to 1,252,750 claims, which was 86,250 claims below the previous week's average of 1,339,000.

The news of a drop was a welcome indication of increased recovery in jobs, but it is important to remember these weekly layoff numbers are historically high.

"Another larger-than-expected decline in jobless claims suggests that the jobs recovery is regaining some momentum, but ... much labor market progress remains to be done," Oxford Economics Senior Economist Lydia Boussour told the Reuters news service.

Consumer Sentiment

Consumer outlook improved very slightly in August, with the Index of Consumer Sentiment ticking up to a score of 72.8 for the month, which was up 0.4 percent from July's score of 72.5, the University of Michigan Surveys of Consumers reported last week. Compared to the same period a year ago, this was 18.9 percent below August 2019's score of 89.8.

The Index of Current Economic Conditions, which describes how consumers feel about the current state of the economy and their place in it, dropped slightly to 82.5 for August, which was 0.4 percent below July's ranking of 82.8. Compared to the same period a year ago, this was 21.7 percent below August 2019's score of 105.3.

The Index of Consumer Expectations, which assesses how consumers feel about where the economy is headed, improved in August, rising to 66.5, which was 0.9 percent over July's score of 65.9. Compared to last year, August's score was 16.8 percent below August 2019's 79.9.

The Surveys of Consumers data speaks to consumers managing their expectations about where the economy is and where it is headed, according to Surveys of Consumers Chief Economist Richard Curtin.

"Bad economic times are anticipated to persist not only during the year ahead, but the majority of consumers expect no return to a period of uninterrupted growth over the next five years," Cutin stated in comments accompanying the report. "Consumers anticipate declines in the national unemployment rate to significantly slow and expect a rising rate of inflation during the year ahead. While a positive growth rate in consumption is anticipated in the second half of 2020, it will hardly herald the end of the coronavirus recession."

This week, we can expect:

  • Tuesday - Housing starts for July from the Census Bureau and Department of Housing and Urban Development.
  • Thursday - Initial jobless claims for last week from the Employment and Training Administration; leading economic indicators for July from The Conference Board.