Head of Global Economics
BofA Global Research
Retail Revival: Enjoy it while it lasts
Retail sales have enjoyed a full V-shaped recovery since the global lockdown in the spring; not just in the U.S. but in most developed market economies. By August (the latest month available in most countries), U.S. retail sales had fully recovered from the shutdown and were 2.2% higher than in February. That’s similar to the Euro Area (2.3%), Canada (1.9%) and Japan (0.1%).
What has driven this V-shaped recovery? First, we saw a diversion of spending away from services like group entertainment, to goods like furniture and electronics as people adapted to a more home-bound and social-distancing lifestyle.
People also quickly pivoted to internet shopping, and we saw governments provide income support for families and people forced to join the ranks of the unemployed because of the shutdown. Additional stimulus in the U.S. helped the retail recovery continue through September, and we think October’s numbers will also be buoyed in the U.S. by shopping events like Amazon Prime Day and the release of the new iPhone.
But there’s a risk that the retail sales strength starts to fade after October. For one, the U.S. and Europe are suffering a sharp increase in the number of coronavirus infections. The situation is likely to worsen as we head into the winter and more activities move indoors.
For another, there seems to be “social distancing fatigue” in every region. People want to get on with normal life even if risks remain. Lower death rates compared to the first wave of the pandemic have also likely emboldened demographics less vulnerable to severe illness, such as young people without diabetes and other conditions. That has raised infection rates among not only low-risk people, but also older or more vulnerable people who come into contact with them. As the outbreaks worsen across the world, policymakers and the public are likely to shift back to a more cautious approach, without going as far as they did in the spring.
The upshot is, absent a new fiscal package in the U.S., October could be the last strong month for consumer spending for a while. Michelle Meyer, our Head of U.S. Economics, believes that fiscal stimulus will be front and center as the most pressing issue post-election. But if there is a change in power, it might take until February for a package to get passed.
We just hope the package will be big enough to help the millions of people who remain unemployed, the state and local governments that are reeling because of a collapse in tax revenues, and the small businesses still struggling to keep their doors open.
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