skip navigation

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

September 16, 2020

Retail Demand Keeps Humming in August

By Michael J. Bazdarich, PhD

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

Retail sales rose 0.6% in August, with that gain offset only partially by a -0.3% revision to July’s level. Sales excluding cars, gasoline and building materials (our “control” sales measure) also rose 0.6% in August, with a similar downward revision to July. Sales excluding vehicles, gasoline, building materials and restaurants—Wall Street’s favored “control” measure—declined a slight 0.1% in August.

Because restaurant sales have been restrained by ongoing shutdowns and social distancing concerns, we have been paying more attention lately to Wall Street’s control measure than to our own. Is the slight drop in that measure in August a concern? Not at all. We were expecting some “pause” in that metric, and the observed drop in August is actually milder than we might have guessed.

That is, pent-up demand accumulated in March and April when retailing was forcibly suppressed across most of the country. Consumers made up for lost time over May-July by purchasing items that they were not able to buy in March-April. Thus, sales in May-July rose to levels way higher than February in sectors such as vehicles and consumer durables.

These overstated sales gains couldn’t last forever, and we have been warning of mild sales declines for these sectors. Much the same was expected for online spending, as consumers returned somewhat to newly reopened brick-and-mortar stores. Finally, grocery store sales were also due to flag a bit, as consumers’ usage of restaurants increased.

All these developments occurred in August, but only slightly. There are two crucial factors within the data to notice. First, while sales at all these (unsustainably strong) retail sectors have declined recently, they still remain way above pre-shutdown levels. Second, sales continue to rise at other store types, which did not get the benefit of unleashed pent-up demand in summer, further indicating that the declines in “overstated” sectors are merely a “coming to ground,” not a sign of weakness.

Thus, restaurant sales rose a nice 4.7% in August and sat “only” 16% below pre-shutdown levels. This is a remarkable achievement given the continuing strictures restaurants continue to deal with in facing the Covid crisis. Elsewhere, we also saw August sales gains at building material, furniture, electronics and apparel stores, as well as gas stations.

Two months ago, we asserted that consumer demand for merchandise (i.e., retail sales) had fully recovered from the Covid shutdown, with net-lower sales in place only at those sectors still being restrained. This remained the case through August, and over the last two months, we have seen some further progress in those sectors still laboring under Covid restrictions. The fact that retail sales continue to eke out gains is even more impressive given that sales growth was sluggish in the four months prior to the March shutdown.

Exhibit 1: Retail Sales Trends
Explore Retail Sales Trends.
Source: Census Bureau. As of 31 Aug 20. Select the image to expand the view.
© Western Asset Management Company, LLC 2022. 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 authorized and regulated by Comissão de Valores Mobiliários and Brazilian Central Bank. 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”) (FRN 145930). This communication is intended for distribution to Professional Clients only if deemed to be a financial promotion in the UK as defined by the FCA. This communication may also be intended for certain EEA countries where Western Asset has been granted permission to do so. For the current list of the approved EEA countries please contact Western Asset at +44 (0)20 7422 3000.