U.S. retail sales unexpectedly increased in August, likely boosted by back-to-school shopping and child tax credit payments from the government, which could temper expectations for a sharp slowdown in economic growth in the third quarter.
Retail sales rose 0.7 per cent last month, the Commerce Department said on Thursday. Data for July was revised down to show retail sales declining 1.8 per cent instead of 1.1 per cent as previously reported.
Economists polled by Reuters had forecast retail sales dropping 0.8 per cent.
Retail sales rebounded despite an ongoing global shortage of microchips, which is forcing automakers to cut production, leading to a scarcity of inventory at showrooms.
The semiconductor crunch, which has been worsened by the latest wave of infections driven by the Delta variant of the coronavirus, primarily in Southeast Asia, is also causing shortages of some electronic goods. Congestion at ports in China is also adding to the supply bottlenecks.
Retail sales are holding up even as spending is shifting back from goods to services like travel and entertainment, though soaring COVID-19 infections are likely delaying the services spending boom.
Retail sales are mostly goods, with services such as health care, education, travel and hotel accommodation making up the remaining portion of consumer spending. Restaurants and bars are the only services category in the retail sales report.
Excluding automobiles, gasoline, building materials and food services, retail sales rebounded 2.5 per cent last month after a downwardly revised 1.9 per cent decline in July.
These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product. They were previously estimated to have dropped 1.0 per cent in July.
Most school districts started their 2021-2022 academic year in August, with in-person learning resuming after last year’s shift to online classes because of the COVID-19 pandemic, marking the return of back-to-school shopping. Qualifying households in July began receiving money under the expanded Child Tax Credit program, which will run through December.
GROWTH ESTIMATES CUT
Tanking motor vehicle sales and struggles by businesses to replenish stocks have prompted economists to slash their GDP growth estimates for the third quarter.
On Wednesday, economists at JPMorgan again trimmed their GDP growth forecast to a 5.0 per cent annualized rate from a 7.0 per cent pace. Goldman Sachs early this month cut its estimate to a 3.5 per cent rate from a 5.25 per cent pace.
The slowing momentum was corroborated by the Federal Reserve’s “Beige Book” report last week showing “economic growth downshifted slightly to a moderate pace in early July through August.” The economy grew at a 6.6 per cent rate in the second quarter.
“We are expecting domestic demand to step up next quarter,” said Michael Feroli, chief U.S. economist at JPMorgan in New York. “This assumes the Delta headwind fades and that the issues afflicting the motor vehicle sector gradually abate.”
Americans are sitting on at least $2-trillion in excess savings accumulated during the pandemic. Wages are rising as companies scramble to fill a record 10.9 million job openings.
A separate report from the Labor Department on Thursday showed initial claims for state unemployment benefits increased 20,000 to a seasonally adjusted 332,000 for the week ended Sept. 11, the Labor Department said on Thursday. Economists had forecast 330,000 applications for the latest week.
Claims were likely boosted by Hurricane Ida, which devastated U.S. offshore energy production and knocked out power in Louisiana. Ida, one of the most powerful hurricanes ever to strike the U.S. Gulf Coast, also drenched Mississippi and caused historic flooding in New York and New Jersey.
Claims have dropped from a record 6.149 million in early April 2020. A 200,000-250,000 range is viewed as consistent with healthy labour market conditions.
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