A Container Store location in New York last week. U.S. retail sales increased 17.7% in May from a month earlier, stronger than economists expected.
Photo: Angus Mordant/Bloomberg NewsThe big hole in consumer spending is still there, but it isn’t quite so deep anymore.
The Commerce Department on Tuesday reported that U.S. retail sales rose 17.7% in May from a month earlier, stronger than economists expected and undoing April’s 14.7% decline. The rebound comes as measures to counteract the novel coronavirus were relaxed, businesses came up with ways to adapt to the pandemic, and most Americans received stimulus payments.
Even so, overall sales in May were 7.9% below their February level, before worries about the coronavirus took hold. Moreover, retail-sales figures don’t reflect spending in many services categories, such as haircuts, movies and dentist appointments. That matters because many of these areas have borne the brunt of the damage from the pandemic. Sales at the only services category that is included in the report—restaurants, bars and other food services—rose 29% in May but were still 41% below February levels.
Separately, the Federal Reserve on Tuesday reported that industrial production—the combined output of U.S. factories, mines and utilities—rose 1.4% in May following a 12.5% decline in April. That was a disappointment as economists had been looking for a stronger gain, and the April figures were also reduced.
The overall message from Tuesday’s reports is that the second quarter, while horrible, won’t be as bad as earlier feared. Moreover, there is room for further improvement in June, as more restrictions are relaxed and more people are called back to work.
The worry right now is that the gains in spending could significantly slow, and even stall, in July and the months that follow. Until there is a vaccine, there are limits on just how comfortable many people will be when it comes to resuming their old ways of doing things. And if states and local authorities are faced with new flare-ups, they may put aside plans to ease restrictions, and could even retighten them.
The other risk is that, with many stimulus checks spent and the expanded unemployment benefits the U.S. government has put in place set to expire at the end of July, a lot of people could lose their wherewithal to spend. Congress will be taking up plans to put through a fourth stimulus package in July, but the deepening partisan divide in a contentious election year risks scuttling it. That would be a deep blow to unemployment insurance recipients, who Evercore ISI strategists point out would on average get a 2/3 cut in pay.
Tuesday’s retail sales report was comforting, but what shape the economy will take in the months ahead is still unknown. Watching what the virus does, and how people react, will be one key to figuring out what may happen. The other one will be watching Washington.
Write to Justin Lahart at justin.lahart@wsj.com
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