MNI REALITY CHECK: US August Retail Sales Seen Losing Momentum

U.S. retail sales likely rose modestly in August, figures due Wednesday should show, although still reflecting a slowing momentum from earlier in the summer as early government stimulus measures ran dry and joblessness remained stubbornly high, industry experts told MNI.

The 1.0% month-over-month gain in the Bloomberg forecast would fall short of July's 1.2% increase, which itself was seven times smaller than June's revised 8.4% gain.

August was another strong month for vehicle retailers, said Michelle Krebs, an analyst at online marketplace Autotrader, but "the momentum we had been seeing appears to be slowing."

Krebs said sales climbed to a seasonally adjusted annual rate of 15.2 million in August by Autotrader's estimate, up from 14.6 million in July though still down from 17.1 million a year ago. Retail sales, tracking purchases made by consumers at dealerships, were down 15% from a year ago, she said, while fleet sales were down 51%.

Krebs said still-high demand for vehicles in August and tightening inventory levels because of new health protocols in factories that are slowing down production are driving car prices higher, placing even used vehicles out of reach for some buyers. That could hamper future sales gains.

"We are seeing record used car prices," she said. "The average listing is over $20,000 -- a milestone we have never seen before." Price increases in used cars and trucks accounted for more than 40% of a 0.4% gain in core CPI in August, the Bureau of Labor Statistics said last week.

Americans on the lower end of the income distribution "aren't buying because they are likely hit by job loss and credit problems," she said. "There's clearly a line between the haves and the have-nots."

Excluding vehicle sales, retail sales are expected to have risen 0.9% in August.

NO BACK TO SCHOOL SHOPPING

Apparel retailers are less upbeat about August sales as consumers hard-hit by pandemic job and income loss are less willing to spend their money on discretionary items like clothing, said Gary Raines, chief economist at Footwear Distributors and Retailers of America, a Washington-based trade association representing more than 90% of the U.S. footwear industry.

"If you're faced with the choice of paying your mortgage or buying a new pair of shoes, you're going to lean toward the mortgage," he said, adding that apparel purchases are usually a last priority in cash-strapped households.

Raines said August is typically a strong month for apparel retailers because of the back-to-school shopping season, curtailed this year by the Covid-19 pandemic which has moved many classrooms online.

"There hasn't been that same back-to-school shopping fervor as in the past," he said. "That may be more of a latent thing that may pick up once more schools begin to reopen, but, for now at least, we didn't see that same year-over-year bump that you tend to see during the August period when the back-to-school season hits its peak."

TABLETS AND LAPTOPS

But the move to online schooling may have translated into more spending on electronics, said Jack Kleinhenz, chief economist at the National Retail Federation, though supply chain constraints and inventory shortages could dampen appliance store sales.

"One of the challenges we have right now is the inventory needed to meet consumer demand," he said. "There's been significant backlogs."

Still, Kleinhenz said August was likely another relatively strong month for retailers, and consumer spending should continue to drive a recovery.

"Spending will look good for August," he said, adding that pent up demand and built up savings should help prop up monthly retail sales, though that support is petering out.

"The economy is still recovering faster than maybe then we had expected, but it's still a long way to full recovery," he said.