Retail Sales, Industrial Production Recovery Slows in July

U.S. retail sales rose for a third straight month in July, albeit at a slower pace than expected, underscoring a moderation in the pace of the economy’s rebound.

The value of retail purchases increased 1.2% from the prior month, according to Commerce Department data released Friday. Even so, the total value of retail sales is now above pre-pandemic levels, with July purchases also up 2.7% from a year earlier.

A separate report out Friday from the Federal Reserve showed total output at factories, mines and utilities rose 3% in July from the prior month, in line with projections, as a surge in motor vehicle production and unusually warm temperatures boosted the overall figure.

Read more: Bloomberg’s TOPLive blog on Friday’s U.S. economic data

U.S. stocks were mostly lower after the reports, while Treasuries were steady and the dollar weakened.

The monthly slowdown in retail sales, compared with June, reflected declines of motor-vehicle purchases and building materials, along with weaker gains at restaurants and clothing stores. The report is in line with previoushigh-frequency data that suggested the economic rebound moderated in July.

“Things have slowed,” Michael Gapen, Barclays Plc’s chief U.S. economist said on Bloomberg Television. “That is consistent with an initial snapback and an ongoing recovery. The July data in total suggest the economy still has momentum. The open question is whether we are going to have enough momentum to carry that through into September and October.”

A separate report Friday showed consumer sentimentremained weak in August. The University of Michigan’s preliminary sentiment index increased 0.3 point to 72.8, still close to April’s pandemic low of 71.8 that was the worst since 2011.

The so-called “control group” subset of sales, which excludes food services, car dealers, building-materials stores and gasoline stations — and is sometimes seen as a better gauge of underlying trends — rose 1.4% from the prior month, more than analysts projected.

The retail sales report showed nine of 13 major categories rose, with the biggest increase coming at electronics and appliance stores. Such sales jumped 22.9% following a 37.6% gain in June. Sporting goods and hobby stores fell 5% from the prior month, after June’s 27.6% rise.

The drop in purchases at auto and parts dealers contrasted with other data showing a pickup in unit sales during the month. Excluding automobiles, retail sales rose 1.9%. At the same time, the Federal Reserve report showed a 28.3% jump in motor vehicles and parts production in the month.

Murky Outlook

The outlook for consumer spending in coming months is murky. Trillions of dollars in federal stimulus have helped support businesses and unemployed workers during the pandemic, but there’s widespread agreement that additional aid is needed.

The extra $600 in weekly jobless benefits that have propped up incomes and spending for millions of unemployed people in recent months expired at the end of July, and lawmakers have been in a stalemate over another aid package.

President Donald Trump — who trails Democratic challenger Joe Biden in recent polls — signed an executive action last week authorizing an additional $300-a-week federal top-up for those receiving at least $100 in other jobless benefits, but exactly when jobless workers will begin to see those supplemental payments is unclear. He also allowed for a four-month deferral of payroll taxes, which would potentially give workers more spending power, but there are questions over whether employers will go along and whether they’ll have to pay it back later.

Read more:

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  • Stimulus Talks Are Stuck in $1 Trillion Ditch Over Aid to States
  • Trump Claims a Lead in Global Rebound With Cherry-Picked Data
  • Democrats’ Job Losses Run Deeper Than Republicans’, Data Suggest
  • Fed Officials Blame U.S. Failures on Virus for Sapping Recovery

Most importantly, the U.S. has yet to get the virus under control, though the spread has ebbed slightly in the last couple of weeks. Several Federal Reserve officials have reiterated the virus’ role in the economic recovery recently, including San Francisco Fed President Mary Daly, who said Wednesday: “The virus determines the pace of our recovery. That’s the main message: uncertainty is before us.”

“The economy is showing some good resiliency despite the high numbers of Covid cases,” Gapen said. “I think that can continue but I think it needs some additional federal support to do that.”

A separate report Friday showed productivity in the U.S. rose in the second quarter by the most in 11 years, though the surge reflected the mathematics of a sharper drop in hours worked compared with output.

— With assistance by Catarina Saraiva, Jordan Yadoo, Edith Moy, Greg Sullivan, Steve Matthews, and Sophie Caronello

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