August retail sales beat market expectations
Economic activity is still at risk as COVID-19 continues to shift the shape of the U.S. economy. KPMG Senior Economist Ken Kim offers three key takeaways.
August retail sales increased by 0.7% on a month-to-month basis beating market expectations for a 0.7% decline. July retail sales were revised sharply lower down 1.8% versus down 1.1% which takes some of the shine away from the August report. So, what are the three key takeaways: Clearly covet continues to shift the shape of the U.S. economy, for example apparel store sales were essentially unchanged in August as back to office plans were shelled by many companies. Additionally, sales at restaurants and bars were flat during the month due to aversion behavior. Second, consumers flock back to online sales as e-commerce purchases showed the biggest increase among all categories rising by 5.3%. Third, the ongoing chip shortage continues to play havoc with motor vehicle sales which decline for the fourth consecutive month. So, what's the bottom line? Economic activity is at risk due to the delta variant, while retail sales were higher in August. The pace of economic activity to date in Q3 is running at a softer pace than what was observed in the first half of this year.
COVID continues to reshape the economy
A deep dive into August data reveals the enduring impact of the pandemic on consumer demand and spending and the retail industry itself. Apparel sales were essentially unchanged this month as return to the office plans were shelved, limiting the need for consumers to purchase new clothing. Sales at restaurants and bars saw no change as consumers avoided restaurants over COVID fears.
As more consumers flocked back to online sales, e-commerce posted the largest increase among all categories, up 5.3%. Some hoarding behavior was evident in categories such as food and beverage store sales, which increased by 1.8%, and general merchandise sales, which rose by 3.5%.
Other bright spots included housing-related purchases, a sign that many people are still working from home. Furniture sales rose by 3.7% and building materials and garden equipment sales increased by 0.9%.
The ongoing semiconductor chip shortage continues to wreak havoc on motor vehicle sales, which fell for the fourth straight month and is down 14% from an April 2021 peak. Little relief from the chip shortage is expected anytime soon as supply constraints continue to be a headwind for the auto sector.
Near-term economic activity at risk
Ultimately, it’s what the consumer does, not what they say they will do, that drives economic outcomes. That remains uncertain as people confront a fresh wave of coronavirus infections.
While August retail sales were up, the Delta variant is tempering expectations for sustained economic growth. The larger services economy may be less resilient, given recent surveys showing slumping consumer confidence. Third quarter economic activity is running at a slower rate than the near 6.5% GDP growth pace observed in the first half of this year.