Retail sales are soaring as consumers continue to adapt to living with the virus

AmCham Colombia presents a new edition of the United States Observatory, a weekly update on the most relevant news and information regarding the economy and trade of this country.

Bogota, 22 October 2020 (AmCham Colombia).- The U.S. Census Bureau reported that retail sales grew 1.9% in September compared to the immediately before month, surprising sharply upwards as they more than doubled consensus expectations of a 0.8% increase.

The report showed gains in all components except electronics sales, where the result is explained by an inevitable correction after high demands were filed in previous months. The largest contributions in the report come from cars, clothing and restaurants with monthly growth of 3.6%, 2.1% and 11%, respectively. Sales of the latter, which were seriously affected during closures, are only 15% below the pre-pandemic peak.

Another positive surprise in the report has to do with the so-called control group, which eliminates volatile components of retail sales such as automobiles and is an important indicator of consumer spending that accounts for much of US GDP.This was 1.5% higher in September compared to the previous month, well above expectations of 0.5%.

These trends are not what would normally be expected in a context where consumers have liquidity problems and are consenting to this. Given the composition of income group spending and savings dynamics, it could be expected that, despite the reduction in fiscal stimulus, consumer spending will last albeit at a slower pace.

The labour market continues to create down-risk

Once again, applications for unemployment insurance move in the wrong direction, reaching the highest level since the week of August 21 and remaining well above the levels of the 2009 crisis.According to the Department of Labor, initial requests for unemployment insurance for the week ended October 10 were 898,000 above the consensus of 825,000 and rising by 53,000 from the level of the week immediately before.

The total number of people receiving unemployment benefit fell slightly to 25.3 million in the week ended September 26 compared to 25.5 million in the previous week. If new containment measures such as those seen in Europe are adopted in the United States, as contagions grow, they could lead to even worse results for a labour market that remains under a broad degree of stress.

This continues to highlight the need for a new fiscal stimulus, however, even though discussions are reluctant to disappear, the firm position of rejecting a large stimulus by Republican Senators headed by Mitch McConnell reinforces the beliefs that an agreement is unattainable.

Industrial production confirms the continuity of tensions over the economy

After strong retail performance, the manufacturing report confirms the tensions that COVID-19 continues to exert on the economy, as well as in the labor market. The Fed announced that U.S. industrial production in September fell 0.6% month-to-month and manufacturing production fell 0.3%, surprising down to expectations of increases of 0.5% and 0.7%, respectively.

Despite cars boosting retail performance, automotive production fell 4% in September (vehicles -7.3% and auto parts -1.3%) after falling 4.3% in August, showing potential concerns from producers about the sustainability of the boom in consumer spending, so they would have accumulated fewer inventories.

Total industry production is 7.1% below February's pre-pandemic level and manufacturing production 6.3% below. Even if the results were negative, the fact that consumer spending accounts for about 70% of the economy and manufacturing industry by about 10%, creates a little calm.