US consumer spending loses steam as pandemic stimulus ebbs | Coronavirus pandemic NewsSeptember 16, 2020
United States 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 is faltering.
The report from the Department of Commerce 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 US 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 US 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, petrol, building materials and food services dipped 0.1 percent last month after a downwardly revised 0.9 percent increase in July. These so-called “core retail sales”, which correspond most closely with the consumer spending component of gross domestic product (GDP), were previously reported to have advanced 1.4 percent in July.
Economists polled by Reuters had forecast core retail sales rising 0.5 percent in August. Overall retail sales increased 0.6 percent 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 percent instead of 1.2 percent as previously reported.
Retail sales account for the goods component of consumer spending, with services such as healthcare, 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 percent below the pre-pandemic level.
US stocks were trading higher as investors hoped the Fed would keep interest rates low for a prolonged period. The dollar was little changed against a basket of currencies. US Treasury prices were higher.
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 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.