skip navigation

Blog

Stay up to date on timely topics and market events. Subscribe to our Blog now.

ECONOMY
July 16, 2020

Retail Sales Recover Further in June from COVID Shutdown

By Michael J. Bazdarich, PhD

Stay up to date on timely topics and market events. Subscribe to our Blog now.

Retail sales continued to increase strongly in June, furthering their recovery from the COVID-induced shutdown that debilitated activity through April. Total sales increased 7.5% in June, following an upwardly revised 18.2% gain in May, leaving them just 0.6% below their pre-COVID February peak.

For our preferred “control” sales measure, sales excluding vehicles, gasoline, and building materials, June saw an increase of 7.2% following a 12.3% May gain, leaving them 0.8% below February’s peak level. Our control measure differs from that followed by Wall Street analysts in that it includes restaurant sales, our thought being that restaurants are normally as indicative of consumer spending trends as the other retail sectors. (In case you are wondering, vehicles, gasoline and building materials are typically excluded from control sales because they reflect business spending as much as consumer spending, and the intent of the control sales measure is to focus on consumer trends.)

However, with COVID-19 fears still heavily restricting activity at restaurants and bars, these are not normal times. So, the commonly presented measure of control sales is more reflective of underlying consumer demand than ours, at least for now. The former measure showed a 5.6% June gain on top of a 10.1% May increase, leaving it 5.2% above the February level.

To repeat, outside of the sectors still heavily restricted by COVID-related realities, consumer spending has actually more than fully recovered from the shutdown imposed on the economy in mid-March. Some prominent analysts have talked of a “cratering of demand” occurring during the economy’s slide in March and April. We would disagree sharply with that assertion, countering that demand was instead artificially suppressed, by consumers forcibly prevented from going to the store. The bounce-back we have seen in sales over the last two months, where allowed, testifies to that description.

Now, certainly, a surge in online sales has facilitated the consumer rebound, so it is not quite business as usual at malls. Still, spending is occurring as best it can. Interestingly enough, sales at nonstore vendors (which include online retailing) actually declined about 2% in June, even while other components of control sales rose sharply. So, again, it is not just online shopping that is powering consumers’ redux.

Restaurant sales remain depressed. After a 54.1% cumulative decline there in March and April, their 57.9% cumulative increase in May and June leaves them 27.4% below February sales levels. (Blame the “magic” of compounding for this fact.) Similarly, we are seeing even sharper net sales declines in other, non-retail service sectors hard hit by the shutdown, such as hotels, recreation and passenger travel.

As long as social distancing restricts activity in these sectors—as well as in medical care—recovery in the economy will be less than complete. However, as seen with the retail sales data today, “less than complete” can still be substantial. If business spending and construction can rebound anything like what we are seeing from consumers, 3Q20 GDP growth could easily be in the high-20% range, with 4Q20 likely to show a strong, single-digit increase.

That would leave the overall economy at year-end still well below pre-COVID activity levels, but it would still constitute a V-shaped recovery and more of a bounce than most countenanced two months ago. Such a scenario obviously assumes no widespread renewal of shutdown edicts, but otherwise is right in line with recent economic indicators.

Exhibit 1: Retail Sales Trends
Explore Retail Sales Trends.
Source: Census Bureau. As of 30 Jun 20. "Control” retail sales is total sales less vehicle dealers, service stations and building material stores. Select the image to expand the view.
© Western Asset Management Company, LLC 2020. This publication is the property of Western Asset and is intended for the sole use of its clients, consultants, and other intended recipients. It should not be forwarded to any other person. Contents herein should be treated as confidential and proprietary information. This material may not be reproduced or used in any form or medium without express written permission.
Past results are not indicative of future investment results. This publication is for informational purposes only and reflects the current opinions of Western Asset. Information contained herein is believed to be accurate, but cannot be guaranteed. Opinions represented are not intended as an offer or solicitation with respect to the purchase or sale of any security and are subject to change without notice. Statements in this material should not be considered investment advice. Employees and/or clients of Western Asset may have a position in the securities mentioned. This publication has been prepared without taking into account your objectives, financial situation or needs. Before acting on this information, you should consider its appropriateness having regard to your objectives, financial situation or needs. It is your responsibility to be aware of and observe the applicable laws and regulations of your country of residence.
Western Asset Management Company Distribuidora de Títulos e Valores Mobiliários Limitada is authorised and regulated by Comissão de Valores Mobiliários and Banco Central do Brasil. Western Asset Management Company Pty Ltd ABN 41 117 767 923 is the holder of the Australian Financial Services Licence 303160. Western Asset Management Company Pte. Ltd. Co. Reg. No. 200007692R is a holder of a Capital Markets Services Licence for fund management and regulated by the Monetary Authority of Singapore. Western Asset Management Company Ltd is a registered Financial Instruments Business Operator and regulated by the Financial Services Agency of Japan. Western Asset Management Company Limited is authorised and regulated by the Financial Conduct Authority (“FCA”). This communication is intended for distribution to Professional Clients only if deemed to be a financial promotion in the UK and EEA countries as defined by the FCA or MiFID II rules.