Retail and food services sales rose by 1.2 percent in July to $536.0 billion, according to a report out this morning from the U.S. Census Bureau. That was slightly worse than the consensus estimate but it followed an upward-revised 8.4 percent jump in the previous month. Further, “core” retail sales, which exclude the volatile automobiles and energy components, also climbed in July (1.5 percent), as did “control group” retail sales (1.5 percent) which better track consumer demand trends, and both gauges easily exceeded forecasts. July’s solid gains are the latest piece of evidence that the “second wave” of the coronavirus has yet to meaningfully derail the economic recovery in America. Looking ahead, higher-frequency data on credit card activity showed that consumer spending has held up well in the first half of August, and another new government report suggests that this level of consumption may actually be more sustainable than many analysts expect because there has been a broad improvement in household balance sheets recently.
Indeed, the latest update on Americans’ debt and credit developments from the Federal Reserve Bank of New York showed that total U.S. household indebtedness was $14.27 trillion at the end of the second quarter of 2020. That was a decrease of $34 billion (0.2 percent) from Q1 2020 and therefore the first decline in 23 quarters. The economic shock from the lockdowns and other efforts to stem the spread of the coronavirus of course ended the multi-year re-leveraging trend but there are actually several encouraging developments worth pointing out. For example, there were only 24,000 new foreclosure starts in Q2 as homeowners with federally backed mortgages were protected via a moratorium in the CARES Act. Similarly, roughly 136,000 consumers had a bankruptcy notation added to their credit reports in the second quarter of 2020, a new all-time low that resulted in part from many courts across the country remaining closed in Q2 due to lingering COVID-19 restrictions. More generally, delinquency rates plunged across the board last quarter, and non-housing debt balances (including credit card, auto loan, student loan, and other debts) saw the largest decline in the history of this data series. Altogether it appears that many Americans used the $1200 pandemic relief checks and other financial support provided under the CARES Act to either stay current on their debt obligations if they lost their job or pay down such liabilities if they were fortunate enough to remain employed. Obviously this unprecedented level of government support will not last forever, meaning that how many of these consumers can maintain their newfound balance sheet strength will help determine not only how robust the post-pandemic economic recovery is but also how prepared the country may be for another crisis down the road.
Sources: Econoday, U.S. DoC, BofAML, FRBNY, FRBSL