By Harriet Torry
U.S. consumers increased retail spending in August for the fourth straight month but at a slower pace than earlier in the summer as the economy tried to recover with the coronavirus pandemic still under way.
Retail sales -- reflecting what households spent at service stations, stores, restaurants and online -- rose a seasonally adjusted 0.6% in August from July, the Commerce Department said Wednesday. It was the third month that retail spending was above prepandemic levels.
August is typically a big month for back-to-school shopping, and spending on electronics rose 0.8% with many school districts teaching classes online. Clothing purchases rose 2.9%, while furniture spending increased 2.1% from July.
Spending at grocery stores dropped 1.6%. Sales at nonstore retailers, which include online merchants such as Amazon.com, were flat.
The monthly gain came as employers added jobs, the unemployment rate declined and manufacturing output picked up. Consumers increased spending despite the expiration of some extra pandemic-related unemployment benefits, though economists say future spending will be damped by benefits reductions.
Retail sales, which make up about 25% of total consumer spending, have bounced back from the coronavirus-induced recession much more quickly than other sectors of the economy. They have been aided in part by extra federal unemployment benefits, which expired at the end of July.
The retail-sales report doesn't track spending on most services, such as health care and hospitality, which make up most of U.S. consumer spending.
Real-time data from private firms suggest that total consumer spending is still lagging behind prepandemic levels because spending on services such as dentist's visits, travel and sporting events hasn't recovered due to the continuing pandemic.
Credit- and debit-card data collected by research firm Affinity Solutions and research group Opportunity Insights showed that overall spending was down 7.3% at the end of August compared with January levels. JPMorgan Chase & Co.'s tracker of credit- and debit-card transactions showed that spending was down 5.7% over a year ago through Sept. 12, with airlines, travel and entertainment particularly hard-hit.
August's increase was slower than earlier in the summer when spending rebounded sharply from steep declines that occurred early in the pandemic. July's spending was revised lower, to a 0.9% increase from an earlier reading of a 1.2% rise.
"It's a foreshadowing of things to come," said Joseph Brusuelas, chief economist at RSM US LLP. "The September spending data is going to be quite dour given the loss of $15 billion a week in income supplements."
Some 25 million Americans lost $600 a week each in federal unemployment benefits at the end of July when the aid from a pandemic-related stimulus package expired. President Trump signed an executive action last month allowing states to tap disaster-relief funds to pay for $300 a week in enhanced aid on top of state benefits, something most states have done.
Retail spending has recovered from the economic shock created by the pandemic, but appeared to plateau last month. Economists say the outlook for continued spending will depend on the path of the pandemic, the labor market and fiscal stimulus. Congress remains at an impasse on talks regarding a fresh round of coronavirus-related aid.
"If Congress is unable to extend fiscal aid to U.S. households in the coming weeks, the U.S. economy will be particularly susceptible to a cutback in consumer outlays -- especially from the lowest income families," James Watson of Oxford Economics said in a note to clients.
Employers have continued to add jobs across industries, but there are still 11.5 million fewer jobs than in February and the unemployment rate of 8.4% is well above the 3.5% level from before the pandemic.
Executives at Walmart Inc., which has lower-income core customers compared with some big-box competitors such as Target Corp., said sales slowed in late July as coronavirus-related government stimulus checks ran out.
"We see a number of consumers who are feeling better about their personal finances, but the sentiment is a little lower than what they've been a year ago," Walmart U.S. Chief Executive John Furner said on a call to discuss earnings in August.
"We are also thinking about the number of consumers who are thinking about job security and other opportunities," he said.
Some retailers say that consumers who are still working from home have continued spending on home improvement, including their workspaces, and purchased big-ticket items with money saved from not dining out or traveling.
That has been the case for Danish furniture company BoConcept, which has seen an increase in online sales amid a drop in foot traffic to stores due to the coronavirus. Steen Knigge, head of U.S. marketing, said the company has benefited in part from pent-up demand for home-office furniture.
"So far retail spending, at least in the premium furniture segment, looks to be very strong," he said.
The housing sector has been one of the winners of the coronavirus pandemic, as consumers working and studying from home seek to improve their residences or upgrade to new ones. Home-builder confidence in the U.S. increased in September for a fifth straight month, hitting an all-time high in the 35-year history of the series, according to a measure from the National Association of Home Builders.
Customers seeking to upgrade phones and computer programs as they work from home have driven sales at Wireless Zone, a national wireless retailer, Executive Vice President Dave Staszewski said.
"Customers now are very focused on what they're looking for and want to get in and out of the store as quickly as possible," he said, leading to increased demand for curbside pickup and touchless payment.
Sales at auto dealerships make up about 20% of total retail sales, and vehicle sales increased 0.2% last month.
Michael Mendoza, an environmental health and safety manager in Deerfield, Ill., recently bought a used 2018 Chevrolet Equinox SUV because his family needed an extra car for his two daughters' school, activities and work.
Mr. Mendoza said he wanted to take advantage of current low interest rates, which, combined with money saved by not traveling, dining out or going to concerts due to the pandemic, meant he could put "a nice down payment on the car."
"I do think the economy is still struggling right now, especially in places where you can't have indoor seating" at restaurants, the 50-year-old said, adding, "I feel bad for some of the small-business owners."
Still, he said he is seeing more traffic on the roads and more people at the golf course, grocery store and gas stations. "I think people are getting back to normal," Mr. Mendoza said.
Sarah Nassauer contributed to this article.
Write to Harriet Torry at email@example.com
(END) Dow Jones Newswires
September 16, 2020 14:07 ET (18:07 GMT)Copyright (c) 2020 Dow Jones & Company, Inc.