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US Retail Sales Stronger Than Expected

July 17, 2020 By Mircea Vasiu

The recovery in the US Retail Sales continues to surprise, in June figures came in at the  second-largest monthly increase on record. The market expected a 5% increase, however the 7.5% outcome took everyone by surprise.

Moreover, even the core number, which excludes automobile sales because they tend to be volatile, rose by 7.3% on expectations of 5%. In other words – a strong signal sent by the US consumer, a positive sign for an economy ravished by the coronavirus pandemic.

The Economic Impact of Stronger Retail Sales Data

The retail consumer is the economic engine of every economy. If the consumer is not spending, the economy chokes in the end, as growth stalls and recession replaces expansion. Jobs are lost in the end, and the government will need to come up with extra funds to cover for high unemployment benefits costs.

Therefore, a healthy consumer indicates a functional economy, one that grows or, in this case, one that recovers from one of the worst economic crises ever known. However, some questions remain regarding the strong comeback in the retail sales data.

For instance, would the data be equally strong if there wasn’t for the state aid received by the US consumer? Probably not.

To put everything into perspective, not only that the June data came way better than expected, but the data for the previous month was revised higher too. May retail sales were revised to 18.2% from 17.7%, another sign of continuation in positive data.

At the same time, unemployment is high, and more businesses apply for Chapter 11 protection than during the Lehman crisis. Therefore, the logical conclusion is that the strength of the data comes from the willingness of the consumer to spend the money received as help to combat the coronavirus pandemic.

Which, by all means, is good news. The fiscal spending from authorities has a purpose – the money to go into the economy, and not into savings. If people’s savings rate increases beyond certain levels, the help provided is not having the desired effects.

In other words, the retail sales data is a confirmation that the government’s actions worked, and similar programs into the future should not be excluded. One big worry is inflation. As the Fed prints money and acts as a banker to the state, too much money chasing fewer goods would result in higher prices.

But until inflation picks up, the US government may just find the remedy to a slowing economy.