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Retail gross sales hit an all-time excessive, however a scarcity of incentive from Congress jeopardizes income

Keith Cunningham of South Carolina buys Walt Disney apparel at the Bargain World gift shop near Walt Disney World, where a gradual reopening due to coronavirus disease (COVID-19 restrictions) on July 11, 2020 in Lake Buena Vista, Florida ) is carried out.

Octavio Jones | Reuters

Retail sales rose to record levels in July, recovering from what was lost in the pandemic. However, the recovery in consumer spending is at risk as Congress refuses to approve a new stimulus package.

Retail sales in July rose 1.2% from June to $ 536 billion and 2.7% from July last year. The sales growth in June has been revised from 7.5% to 8.4%.

"We're back to where we were before the pandemic. If there's one part of the economy that has recovered in a V-shape, it's retail," said Mark Zandi, chief economist at Moody's Analytics. But economists say V could become a W as the unemployed lose improved benefits that give individuals a $ 600 per week supplement through July 31.

Retail sales are viewed as a barometer of consumer health, and with 28 million people still receiving some form of unemployment benefit as of mid-July, economists say the aid played a big role in the rebound in sales. The special pandemic aid for gig workers and self-employed will continue until December.

Diane Swonk, chief economist at Grant Thornton, said she was not increasing her third quarter GDP forecast because of the strong data. She is waiting for what will happen in August, when the unemployed will no longer receive the additional funds.

"Even if we get a cut related to loss of benefits and unemployment insurance, we will still have a strong third quarter, but it sets the stage for a major collapse in the fourth quarter," she said. "August retail sales could be flat to low."

The House Democrats had tried to keep the weekly payment of $ 600, but the Senate Republicans only proposed $ 200. Talks have stalled and the Senate has now paused. President Donald Trump signed an executive order allocating $ 300 a week to the unemployed, urging states to add $ 100 to that number. However, it could take several weeks for the funds to be processed and that would vary by state.

Critics point to studies showing that 70% of beneficiaries received more than their normal salaries, and some economists say that part of the decline in people claiming unemployment may be related to workers leaving after the additional wages Payments returned to work.

However, the payments seemed to be of clear help to the consumer, who makes up about 70% of the US economy.

One of the biggest year-over-year increases in July was sales in grocery stores, up 10.6%.

"One reason is that people are returning to bars and restaurants, but food insecurity is also increasing," said Swonk. "This is the area we want to watch closely in August when we lose the $ 18 billion … that's the weekly add-on of $ 600 – a total of $ 18 billion."

Spending in restaurants and bars increased 5% in June. Electronics and home appliance sales rose the most, increasing 22.9% from June but still declining 2.8% year over year. Apparel and apparel sales increased by 5.7%, but declined by 20.9% compared to the previous year. Motor vehicle sales were down 1.2% from June, but increased 6.1% from the previous year.

General goods transactions were down 0.2% from June. "That's a window into retail spending in a broader sense. The fact that there were still problems suggests that if the consumer doesn't get help, this V could become a W," Zandi said.

Zandi said it was difficult to see the economy get to the other side of the pandemic without a stimulus package to bridge support for the unemployed and also help fund states and local governments.

"States will have to reduce payrolls and programs. State and local payrolls have fallen by 1.3 million since July, starting February," Zandi said. "That reflects their budget gap for 2020. They relied on the government to bring in money."

Zandi said retailers benefited disproportionately from the pandemic as people changed their behavior. Many still work from home, spending on furniture and other home improvement categories. Sales of building materials and garden tools increased by 14.8% compared to the previous year.

"The rest of consumer spending is L-shaped, all spending on services going nowhere. That is where most of the spending goes," said Zandi. "The general consumer image is still weak and until the pandemic is over I don't think consumers will be traveling, getting on planes, going to ball games or gyms … The economy will continue to struggle until the pandemic is over Over. "

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