US consumer spending and homebuilders’ confidence returned to levels last seen before the pandemic struck, offering signs of an economic improvement even as a reversal of reopening plans in some states threatens to decelerate the nation’s recovery.
The US Census Bureau said on Thursday that June retail sales were up 7.5 per cent compared with the month before as more Americans returned to work and retailers emerged from coronavirus-related shutdowns. That exceeded economists’ estimates of 5 per cent growth, according to a Reuters poll. It followed a May rise of 18.2 per cent, which was revised higher from 17.7 per cent.
The National Association of Home Builders’ Housing Market Index climbed to 72 in July from 58 the previous month, exceeding economists’ forecasts by 12 points and matching its reading in March. The jump coincided with a decline in mortgage rates, which have slipped to their lowest on record.
An increase in Covid-19 cases in the US south and west has raised concerns of a bumpier recovery than hoped, despite improving data on the labour market, consumer spending, housing and manufacturing.
The number of Americans collecting unemployment cheques eased for the sixth week running to 17.3m from 17.8m, reflecting how businesses had rehired workers even as lay-offs continued four months into the pandemic. Continuing claims for the week ending on July 4 marked the lowest level since early April and compared with economists’ estimates of 17.6m.
Retail sales data are painting a picture of a V-shaped recovery in consumer spending, but it is doubtful this momentum can be sustained
“So far, retail sales data are painting a picture of a V-shaped recovery in consumer spending, but it is doubtful this momentum can be sustained,” said Jefferies economists Aneta Markowska and Thomas Simons. “Higher-frequency data show a significant loss of momentum since mid-June, driven by a combination of the Covid resurgence and fading fiscal support.”
The governor of California this week expanded a rollback in the state’s reopening by ordering all bars, dine-in restaurant services and other indoor business activity to shut down again. Texas and Florida have also closed bars in an effort to slow the spread of coronavirus.
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Paul Ashworth, chief US economist at Capital Economics, said the stronger-than-expected retail sales figures suggested that Covid-19 outbreaks “hadn’t yet had an impact on consumers” last month. He also noted that the economic contraction in the second quarter may not have been as bad as feared given robust consumer spending.
“Admittedly, the high frequency data suggest that the recovery lost a lot of momentum in early July — with initial jobless claims basically unchanged at 1.3m in the week ending 11th July — but that’s not a disaster because the rebound in sales in June was big enough to eliminate nearly all of the remaining shortfall relative to the pre-pandemic level,” Mr Ashworth added.
Retail sales in June were less than 1 per cent from levels recorded before the crisis, according to Capital Economics. They also were up 1.1 per cent year over year.
The monthly rise in spending was driven in part by petrol stations and food services as restaurants across the country reopened. Sales in cars and parts, clothing stores, electronics, appliances and home furniture also gained.
Non-store retailers, a category that includes ecommerce shopping, posted a 2.4 per cent decline in sales with customers returning to brick-and-mortar outlets. Food and beverage stores were down 1.2 per cent.
Slightly fewer workers applied for new jobless benefits last week, according to figures from the US Department of Labor. There were 1.3m first-time claims, against 1.31m the week before. Economists had forecast claims of 1.25m. The pace of new claims has gradually slowed in each of the past 15 weeks since hitting a high of 6.9m in March.
Florida recorded the largest jump in initial claims compared with the previous week, followed by Georgia and California, based on advance figures that are not seasonally adjusted. Maryland, Texas and New Jersey had the steepest declines.
New claims in the Pandemic Unemployment Assistance programme, which extended aid to the self-employed or other individuals who would not qualify for regular unemployment compensation, fell to 928,488 from about 1m on an unadjusted basis.
Continuing unemployment claims as proportion of workforce
Economists have noted that a backlog in applications has helped prop up weekly figures for jobless claims, after a rush of submissions early in the crisis caused delays.
Lawmakers are at odds over whether to extend a $600-a-week addition to jobless benefits that is set to expire at the end of July.
Employers added a combined 7.3m payrolls in May and June, which followed a record loss of 20.5m jobs in April, as the phased reopening of the US economy led to a surge in hiring.
Continuing claims, which are reported with a one-week delay, were equivalent to 11.9 per cent of the workforce. This so-called insured unemployment rate, which was 12.2 per cent the week before, is considered an alternative measure of joblessness.
Continuing claims peaked at 24.9m in May and remained above the 20m mark until early June. During the 2008-09 financial crisis, they hit a high of 6.6m.
Additional reporting by Mamta Badkar in New York