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Even as coronavirus infections continued to spread, in-person school re-openings were scrapped and unemployment stayed near historic levels, Americans kept shopping in July with retail sales rising 1.2 percent from June, reflecting a rare bright spot in the battered economy.
The jump in sales reported on Friday by the Commerce Department, though smaller than the increases in the previous two months, showed that the bounce back in spending to pre-pandemic levels was not a fluke. Sales are now back at the level they were in February. It was instead a sign that consumerism, buoyed by government support, remains resilient even as many other facets of American life are increasingly bleak.
“It shows there is a willingness and a desire to spend,” said Michelle Meyer, chief U.S. economist at Bank of America. “There is no doubt the recovery in consumer spending has been robust.”
Retail sales in June rose 8.4 percent. That followed a May jump, 18.2 percent, which was the largest monthly surge on record. But that had followed two months of record declines.
Some of the recovery has been helped by the $600 a week in unemployment assistance, which expired at the end of July. If Congress fails to extend the emergency benefit, it could derail the retail rebound in coming months. And there are certain sectors of the industry that may never truly bounce back until a vaccine is approved and widely distributed, allowing people to shop and dine indoors again without fear.
Foot traffic to brick-and-mortar stores selling primarily discretionary goods, including apparel retailers, remains down by as much as 43 percent from last year, according to Morgan Stanley’s research.
That persistently low traffic — following weeks and even months of temporary store closures — helps to explain why a record number of retailers have declared bankruptcy or closed down during the pandemic, even as sales of products like groceries, at-home entertainment and appliances have been booming.
Many analysts had predicted that surging infections in states like Arizona, California and Texas that forced restaurants and stores to close again after reopening once already would significantly dent retail sales in July.
There were some regional dips, but national sales continued to rise. Some economists said that pointed to the substantial shift the country had made to online shopping during the pandemic.
“This year is a complete game changer in terms of e-commerce,” said Mickey Chadha, senior credit officer at Moody’s Investors Service.
But selling goods online is by no means a panacea. For one thing, it can be far more expensive to retailers because of shipping costs. Even as online buying increases during the pandemic, many retailers are seeing profits drop.
“Profitability is not coming back to last year’s levels until 2022,” Mr. Chadha said.
Still, the increased emphasis on e-commerce has pushed retailers to embrace change. Companies like Levi Strauss & Company, the denim retailer, have accelerated the introduction of features like curbside pickup and appointment shopping and are testing same-day delivery. The pandemic has supercharged “what may have taken five or 10 years and compressed it into this very short period of time,” said Chip Bergh, Levi’s chief executive.
With malls and department stores struggling, brands like Levi’s have been forced to think about the best way to reach customers. “With hundreds of doors closed by more traditional department stores, we’re remapping the market,” Mr. Bergh said. The brand has expanded to about 140 to 150 Target locations in the past 18 months “and as other department stores are going to be closing, we’re working with Target to see if there’s an opportunity for us to do more.” He also said that the brand has a successful value line at Walmart and a longtime partnership with Amazon.
Many retailers are grappling with an unusual back-to-school shopping season, which typically drives sales in July and August. This year is different, with many schools and colleges planning to start remotely.
Bed Bath & Beyond recently introduced a “College at Home” section on its website, encouraging parents and students to buy new wares to transform their childhood bedrooms into what it called “dreamy dorm spaces” for remote learning, with youthful themes such as “chill camp vibes,” “low-key bohemian” and “modern glam.”
The pitch is to make the rooms “more effective and more exciting to them even if they can’t be on campus,” said Joe Hartsig, chief merchandising officer at Bed Bath & Beyond. “It’s a real window of change for students to reflect that they’ve moved on from high school and are in college, and want their room to reflect a different room.”
Kohl’s back-to-school offerings are listed online with the tagline, “Heading back or logging in, the new year starts here.” The typical clothing and backpacks are followed by a link to face masks and hand sanitizer. Another section tailored to remote learners offers “everything kids need to redefine the routine.” It includes links to educational toys and virtual learning tools, as well as others titled “Your Kitchen Cafeteria” and “Backyard Recess.”
The U.S. economy struggled to shake off the last recession, with historically slow growth and a labor market that took more than six years to recover its earlier employment levels. A big part of the reason: state and local governments, which cut spending and fired workers amid widespread budget shortfalls.
The same dynamic poses one of the biggest threats to America’s recovery from the pandemic downturn. State governments are again experiencing extreme budget problems as they pay out increasing sums to cover unemployment and health costs caused by the coronavirus crisis while revenues from sales taxes and corporate and personal income tax payments plummet. States could face a gap of at least $555 billion through the 2022 fiscal year, according to one estimate.
Economists warn that the long-term risk coming from struggling states could prove even more damaging this time than the recession of 2007-9 unless Congress steps in. Yet providing more aid to state and local governments has become one of the biggest political battles in the fight over another pandemic rescue package.
The Senate formally adjourned on Thursday until early September, all but ending any chance that an agreement could be reached soon. House members had already left Washington.
While many governments entered the downturn with solid tax revenues and billions of dollars in their rainy-day funds, those coffers are quickly dwindling. State revenues “could fall as much as or more than they did in the worst year of the Great Recession and remain depressed in following years,” according to the Center on Budget and Policy Priorities, a progressive think tank.
Wall Street was set to open flat as investors considered fresh data on retail sales in the United States and new economic figures out of China.
Futures for the S&P 500 wavered between gains and losses in premarket trading. On Thursday, the S&P dropped less than half a percent, though it was still close to a record high.
The Euro Stoxx 600 benchmark index was 1.7 percent lower. Earlier in Asia, Chinese indexes had a good day, propelled by some positive economic data.
The U.S. Commerce Department on Friday reported that retail sales in July rose 1.2 percent from June, even as coronavirus infections spiked in multiple states. It was the third straight month of increases, though growth is slowing. Some American consumers had, until the end of July, been supported by a $600 a week benefit from the government. Congress is at an impasse over further aid to the unemployed, which could impact retail sales moving forward.
Britain on Friday announced that people arriving from France, the Netherlands and Malta would need to self-isolate for 14 days, following a rise in coronavirus cases in those countries. The new rules threw a wrench into many vacation plans, and called into doubt efforts to relax lockdowns. Travel businesses felt an immediate impact, including airlines (EasyJet shares fell 7 percent, and the parent company of British Airways fell more than 6 percent) and tour operators (TUI tumbled more than 5 percent).
Underscoring the concerns, France on Friday declared Paris and the Marseille region to be high-risk zones, granting local authorities powers to impose new restrictions aimed at containing the spread of the coronavirus.
In China, economic data showed industrial output rose nearly 5 percent in July from a year earlier, while retail sales slumped 1.1 percent over the same period. It was a further sign that while China’s factories are humming, its residents are holding back from making purchases.
The federal aid to unemployed workers that President Trump announced last weekend looks likely to be smaller than initially suggested — and it remains unclear when the money will start flowing, how long it will last or how many workers will benefit.
Mr. Trump said Saturday that he was taking executive action to provide unemployed workers with $400 a week in extra payments, with states picking up one-quarter of the cost. He did so after talks on a new round of pandemic relief stalled in Congress.
States are scrambling to figure out how to carry out the plan. Here’s what we know so far:
The benefit will be $300 for most workers, not $400. Rather than adding $100 a week on top of existing unemployment benefits, states can count existing benefits toward their share.
It could take weeks for the money to start flowing. States will need to adjust their processing systems to the new provisions when they are already overwhelmed by unemployment filings.
The money won’t last long. Mr. Trump’s executive action caps spending on the program at $44 billion, enough to cover five or six weeks of benefits, assuming all states sign up.
Workers are left in limbo. For unemployed workers, the uncertainty hangs over mounting credit card debts and looming rent payments. And those who collect less than $100 a week in state jobless benefits do not qualify for the new supplement.