Upturn in US Retail Bolsters Hopes of a V-shaped Recovery

Retail sales showed signs of recovery in May as stores began to re-open across the United States, with incomes being supported by extended unemployment benefits. However, doubts exist over how long these benefits will last, with millions of Americans still out of work and prolonged social distancing measures meaning that normal market conditions are still a long way away.

Retail sales rebounded greater than expected during May, increasing by 17.7%, much higher than the estimated 8.4% gain. Adjusted data from April showed losses were less than initially reported, at -14.7% compared to the initial -16.4%. This result of which means the adjusted dollar level of US retail sales was back to similar levels for March. This was almost 8% lower than January’s level. This latest report indicates that a more V-shaped recovery is increasingly likely.

Details indicate a sharp rise for motor vehicles (+44%), furniture (+90%), sporting goods (+88%), electronics (+50%) and clothing (+188%), all boosted by many retailer discounting goods.

Retail sales have accounted for 42% of total consumer spending over the past ten years, with housing, healthcare and financial services being the other large contributors. Consumer spending accounts for around 70% of total GDP, signalling that retail sales account for almost a third of GDP. The size of today’s rebound is hugely significant and will likely lead to upward revisions to Q2 GDP.

The huge fiscal stimulus and monetary support, including the additional $600 per week in unemployment benefits per person, gave households the income and confidence to spend. This extra $600 payment ends in July however, employment is still around 20 million higher than at the start of 2020.

Uncertainty in the coming months remains to be largely dependent on how quickly states can ease distancing measures and how many workers who were laid-off can return to their previous jobs.

Recent spikes in Covid-19 cases in some states have led to fears that some of the re-opening processes will be delayed further, with fears that even a potential return to lockdown may be necessary. This will severely damage hopes of recovery. Until a vaccine becomes available, social distancing will continue and prolong consumer caution. Despite today’s report, the path to previous normality still looks distant.

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