• Retail sales strengthened for the fourth straight month, advancing 0.6% month-on-month in August, down from 0.9% in July. The increase in retail sales last month was below consensus expectations, which called for a 1.0% gain.
  • Spending in volatile categories rose in August. Food services and drinking places posted the strongest gain of 4.7%, while motor vehicles and parts (+0.2%), building materials (+2.0%), and gasoline stations (+0.4%) saw more modest increases.
  • Excluding these categories, the retail sales control group saw a decline last month, falling by 0.1%. Weaker spending on food and beverage stores (-1.2%) and sporting goods (-5.7%) were the main contributors to the fall.

Key Implications

  • Retail sales continued to move up as consumers kept spending in August. However, purse strings are tightening as witnessed by the flattening trend in retail sales growth. The extraordinary gains in May and June are giving way to a much slower pace of spending.
  • There are two factors behind this slowdown. One, a normalization of spending growth to historical trends as pent-up demand from the lockdowns has been fulfilled. And two, incomes have declined for a significant share of the population. More than 25 million unemployed people were receiving $600/week payments provided by the CARES Act when they stopped in late July. This drop off in payments will surely stretch household finances, and belts will need to be tightened until individuals find new jobs or return to old ones, which could be hard to come by due to the still recovering labor market.
  • Negotiations for a new stimulus bill have stalled in recent weeks, with some reports suggesting it may not come until after the election. A lack of fiscal support could mean a decline in spending in coming months. Aside from the pandemic, this is the most significant near-term risk to the U.S. economic outlook.


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