Consumers defied expectations and shopped at an increasing rate amid a resurgence in COVID-19 cases.
Why it matters: Several measures of consumer confidence fell sharply in August, suggesting consumer spending could fall during the month. In fact, concerns about the Delta variant's impact on the economy had prominent Wall Street economists cutting their expectations for Q3 GDP growth.
Yes, but: Retail sales in August unexpectedly rose 0.7% month over month. Economists were expecting a 0.7% decline.
By the numbers: Excluding autos and gas, sales jumped by 2% to $448 billion. Economists were expecting no growth in this metric.
- Leading the way was online retail, which jumped 5.3%. Furniture and home furnishings sales climbed by 3.7%. Department store sales rose by 2.4%.
- On the weak side, motor vehicles and parts sales fell 3.6%. Electronics and appliances sales declined by 3.1%. It’s worth noting that these are both categories that have been affected by chip shortages.
What they’re saying: “Confidence may have plunged, but rising incomes, employment and accumulated savings mean that people continue to spend,” ING chief international economist James Knightley said.
- “Upside surprises on this scale don’t come often, and this one indicates a real degree of resilience on the part of consumers,” Pantheon Macroeconomics chief economist Ian Shepherdson noted.
Between the lines: On one hand, low inventories due to supply chain issues may have limited some retailers' sales. On the other hand, expectations for shortages and the desire to avoid crowds may be pulling forward some holiday sales.
- According to a CreditCards.com survey flagged by CNBC, 13% of shoppers planned to begin their holiday shopping as early as August because of these reasons.
Threat level: “Data on the worst effects tied to the spread of the Delta variant and disruptions from Hurricane Ida are still ahead of us,” Grant Thornton chief economist Diane Swonk said.
- “This is at the same time that the additional support to unemployment insurance for millions has expired. We are poised to eke out a very modest gain for consumer spending during the quarter.”
The bottom line: Consumers have proven incredibly resilient, sending retail sales well above pre-pandemic levels.
- While risks to spending linger, consumers continue to have the capacity to spend at a rising clip. More on that later in this newsletter.