Do big retail numbers in September make further Phase 4 talks unnecessary?

Do big retail numbers in September make further Phase 4 talks unnecessary?

Answer: Not necessarily, but it might complicate the politics around the standoff over the stalled Phase 4 relief package. Corporate America and small business owners are warning that continuing restrictions on commerce run the risk of mass layoffs sooner rather than later. The Fed warned earlier this month that economic expansion appeared to have stalled. Even Hollywood has been pressing for some relief aimed at movie theaters to maintain their major distribution chain through the crisis.

But is it a crisis? The retail sales numbers for September released by the Commerce Department don’t reflect a crisis. In fact, they came in far higher than economists expected:

Advance estimates of U.S. retail and food services sales for September 2020, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $549.3 billion, an increase of 1.9 percent (± 0.5 percent) from the previous month, and 5.4 percent (± 0.7 percent) above September 2019. Total sales for the July 2020 through September 2020 period were up 3.6 percent (± 0.5 percent) from the same period a year ago. The July 2020 to August 2020 percent change was unrevised at up 0.6 percent (± 0.2 percent).

Retail trade sales were up 1.9 percent (± 0.5 percent) from August 2020, and 8.2 percent (± 0.7 percent) above last year. Nonstore retailers were up 23.8 percent (± 1.6 percent) from September 2019, while building material and garden equipment and supplies dealers were up 19.1 percent (± 2.1 percent) from last year.

The month-on-month increase was broad and included impressive gains in brick-and-mortar establishments. However, that only measures September against August; year-on-year figures remind us how far they still have to come back. For instance, clothing stores sales went up 11% in September, likely from pent-up demand from the shutdowns. That sector is still down -12.5% YoY, as are electronics/appliance stores (-6.4%), food services (-14.4%), gasoline stations (-13.3%), and so on.

Worth noting, too: Nonstore retailers, ie online, still gained 0.5% from August and is still up 23.8% from last year. Overall, retail is up 5.4% from a year ago. That’s still a large shift away from local retail stores to online sales.

In other words, it’s still a crisis, especially for in-person retail and the jobs tied to that sector all through its distribution chain. And there’s some evidence that buying power might be declining, or at least the backlog of savings from previous stimuli being depleted. Robert VerBruggen charts Chase data on weekly spending rates and checking account median levels this year and notices a sharp decline in both among those who were covered by unemployment benefits until they expired in August. His conclusion:

One takeaway is that it might not have been such a bad thing for Congress to pause the boost for a while, given how generous the boost was and how much was saved — though of course that doesn’t help people who lost their jobs after the expiration. The other, though, is that the accumulated savings are probably gone by now, and the economy is far from fully recovered, with an unemployment rate of about 8 percent in September. Congress really should get its act together and pass another, smaller round of stimulus to get us through this (hopefully) last stretch of turmoil.

That’s why economists are expecting gloomier sales figures this month and further, without any more stimulus from Washington:

New coronavirus cases are also surging across the country, which could lead to restrictions on businesses like restaurants, gyms and bars, and undercut consumer spending. The economy is already shifting into lower gear. Other data on Friday showed an unexpected drop in production at factories last month.

“Although sales growth is strong, it will slow through the rest of this year and into next year,” said Gus Faucher, chief economist at PNC Financial in Pittsburgh, Pennsylvania. “The slowing will be even larger if Congress does not pass another stimulus bill. Unemployment remains pervasive throughout the U.S. economy.”

VerBruggen’s analysis certainly should have us betting that way. With government still restricting in-person commerce capacity, and with even more restrictions on the way, government at some level will either have to subsidize the impacts of those restrictions or employers will have to shed payroll costs. When a vaccine emerges and gets wide enough distribution, then the need for targeted stimuli and subsidies will decline. As the charts show, the impact of April’s CARES Act lasted for months, so perhaps we do only need one more package to get us through the home stretch.

But will Washington respond? Donald Trump promised in last night’s NBC town hall that he could deliver Senate Republicans if Nancy Pelosi and Steve Mnuchin could agree on terms. Mitch McConnell begs to differ, but perhaps that might change if the deal comes after the election — even though a deal would likely help Trump more before it. The real mystery is how two parties that both would benefit (in different ways) from a Phase 4 relief bill can’t figure out how to overcome their petty squabbles to split up largely imaginary money. Today’s retail report will likely extend the standoff, even though it shouldn’t.

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David Strom 3:21 PM on March 24, 2023