The Wall Street Journal – The U.S. economy is proving resilient in the face of the Delta variant.
Americans briskly increased spending at retailers last month, while employers have largely resisted the urge to lay off workers, the government reported Thursday, both signs of strong demand in the economy.
Sales at the nation’s retailers rose 0.7% in August, rebounding from a drop in July, the Commerce Department said. With many schools, college campuses and offices reopening, consumers shelled out more for groceries and merchandise at big-box stores. Those purchases—along with higher spending on furniture and hardware—offset another big decline in car sales, which have suffered from a global computer chip-shortage that has crimped supply.
Meanwhile, initial jobless claims—a proxy for layoffs across the U.S.—rose 20,000 last week to 332,000 but remained near a pandemic low, the Labor Department said. Layoffs caused by Hurricane Ida, which hit Louisiana in late August, likely contributed to the increase, economists said.
Claims have trended lower since mid-July, a sign employers are holding on to workers.
U.S. stocks fell on Thursday as investors weighed mixed economic readings, including a stock-market pullback in China.
The reports eased fears that Delta, a highly contagious strain of Covid-19, would knock the recovery off course. After retail sales fell in July, economists and business groups warned of further declines. Governors and mayors imposed new rules on mask wearing and capacity to prevent the virus’s spread.
“Delta? What Delta?” Ian Shepherdson, chief economist at Pantheon Macroeconomic Advisers, said in a note to clients. In an interview, he added that clients have asked whether Delta spelled the end of the recovery. “Absolutely not,” he said. “It’s an external shock that’s denting it temporarily.”
To be sure, mask mandates, capacity restrictions and consumer fears stirred by Delta have weighed on the economy. Americans in recent weeks have cut spending on travel, and multiple artists have canceled concerts. Such spending isn’t captured in retail sales, which includes restaurant sales but mostly covers goods such as cellphones, televisions, groceries and back-to-school goods. A separate Commerce Department report capturing overall spending will be released Oct. 1.
Sales at restaurants were flat last month after rising briskly for most of this year. Economists believe fears of Delta were a factor. Despite the August pause, restaurant sales have climbed nearly 32% over the past year.
Business has fallen sharply over the past month at Reveler’s Hour, a pasta-and-wine bar in Washington, D.C., that serves diners exclusively indoors. But business at its sister restaurant, Tail Up Goat, has been steady, largely because it has outdoor seating, easing patrons’ concerns about contracting the virus, co-owner Bill Jensen said.
He said he believes that business will return once concerns about the virus ease. Many parents who used to frequent his restaurants are reluctant to return because their young children haven’t been vaccinated, he said.
“We’re confident there’s a community of people and audience for this restaurant to sustain it long term,” Mr. Jensen said of Reveler’s Hour. “There’s just a lot that’s uncertain.”
Households appear to be changing their spending habits to avoid the virus’s spread, mainly by shifting away from services such as concerts and air travel toward goods. Thursday’s report showed that sales rose only modestly at gasoline stations, a sign some households scaled back summer travel plans in response to the Delta-related surge of infections.
Meanwhile, a global shortage in computer chips continues to weigh on car sales, which fell 3.6% last month. Dealership inventories are running low, preventing consumers from buying cars despite strong demand.
But broader forces are lifting the retail sector and economic recovery: a historically high level of savings, strong job growth and rising wages.
Retail sales—including spending on restaurant meals, cars, cellphones and computers—are a big slice of consumer spending, which itself is the largest source of economic demand in the U.S.
“Households have plenty of income to spend,” said Stephen Stanley, chief economist at Amherst Pierpont, a bond trading firm.
In recent days, some economists have downgraded estimates for economic growth in the third quarter because of the Delta variant and bottlenecks in the global supply chain. JPMorgan Chase on Wednesday projected gross domestic product to expand at a 5% annual rate in July through September, down from a prior estimate of 7%, citing lower demand and production shortages, particularly in the car industry.
There are signs the Delta variant wave has crested. Economists believe retail sales could recover quickly as more Americans become vaccinated and feel safe again to venture out, and as product shortages ease.