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A shopper browses a Bink's Outfitters store in Murfreesboro, Tenn., on April 29, 2020.Mark Humphrey/The Associated Press

U.S. consumer spending slowed in August, with a key retail sales gauge unexpectedly declining, as extended unemployment benefits were cut for millions of Americans, offering more evidence that the economic recovery from the COVID-19 recession was faltering.

The report from the Commerce Department on Wednesday ramped up pressure on the White House and Congress to restart stalled negotiations for another fiscal package. At least 29.6 million people are on unemployment benefits. Consumer spending accounts for more than two-thirds of the U.S. economy and signs of fatigue are likely to grab the attention of Federal Reserve officials as they wrap up a two-day policy meeting.

“Consumers are being increasingly cautious with their spending,” said Gregory Daco, chief U.S. economist at Oxford Economics in New York. “If Congress is unable to extend fiscal aid to households in the coming weeks, the economy will be particularly susceptible to a cutback in consumer spending, especially from the lowest-income families.”

Retail sales excluding automobiles, gasoline, building materials and food services dipped 0.1 per cent last month after a downwardly revised 0.9 per cent increase in July. These core retail sales, which correspond most closely with the consumer spending component of gross domestic product, were previously reported to have advanced 1.4 per cent in July.

Economists polled by Reuters had forecast core retail sales rising 0.5 per cent in August. Overall retail sales increased 0.6 per cent in August, in part as sales at restaurants and bars continued to recover. Data for July was revised down to show retail sales increasing 0.9 per cent instead of 1.2 per cent as previously reported.

Retail sales account for the goods component of consumer spending, with services such as health care, education, travel and hotel accommodation making up the other portion. Services have been hardest hit by the coronavirus, which plunged the economy into recession in February, and spending on services remains about 10 per cent below the prepandemic level.


The retail sales report followed data this month suggesting the labour market was losing speed after astounding employment gains in May and June as businesses reopened after being shuttered in mid-March to control the spread of the novel coronavirus.

Job growth slowed further in August and new applications for unemployment benefits remained perched at extraordinarily high levels in early September. At the same time, manufacturing is also showing signs of tiring, with output slowing last month.

A US$600 weekly unemployment subsidy expired in July. It was replaced by a US$300 weekly supplement, which was not available in all states, and funds for the program are expected to run out this month. Economists estimated that the reduced unemployment benefits supplement cut income by about US$70-billion in August.

Government money was credited for the sharp turnaround in economic activity that started in May. Still, consumer spending is expected to rebound strongly in the third quarter because of robust momentum in core retail sales at the tail end of the April-June quarter.

Consumer spending suffered a record collapse in the second quarter. The pullback in core retail sales in August, if sustained, would set up consumer spending on a slower growth path in the fourth quarter. Growth estimates for the third quarter top a 30-per-cent annualized rate. The economy contracted at a historic 31.7-per-cent pace in the April-June quarter.

“We have concerns about how strong the recovery will be in the fourth quarter and our optimistic 7.0 per cent real GDP growth looks on increasingly shaky ground unless more jobless workers can find a place in this economy,” said Chris Rupkey, chief economist at MUFG in New York.

The slowdown in spending last month was underscored by a 5.7-per-cent drop in sales at sporting goods, hobby, musical instrument and book stores. Receipts at food and beverage stores fell 1.2 per cent, while online and mail-order retail sales were flat.

Sales at electronics and appliance stores rose just 0.8 per cent after surging 20.7 per cent in July. Receipts at auto dealerships rebounded 0.2 per cent after falling 1 per cent in July.

While sales at clothing outlets gained 2.9 per cent, they remained 20-per-cent below the February level. Receipts at restaurants and bars rose 4.7 per cent. Although sales at these establishments accounted for a chunk of overall retail sales last month, they were still more than 16 per cent below their prepandemic level.

Sales at building material stores rebounded 2 per cent and receipts at furniture outlets rose 2.1 per cent. The strength in these categories likely reflects a resilient housing market, which is being boosted by historically low mortgage rates and the migration to suburbs and lower-density areas as more workers continue to operate from home because of the pandemic.

A report on Wednesday showed confidence among single-family homebuilders rose to a record high in September.

“The sector clearly has benefited from low mortgage rates in recent months,” said Daniel Silver, an economist at JPMorgan in New York.

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