The fast-spreading Delta variant may have a lesser impact on the economy than previously estimated. Although there is no end to the COVID-19 pandemic in sight, American retail sales have increased in August. These results are most likely due to the combined effect of children returning to school and child tax credit payments, but they are also an important boost for the recovering economy. With people still insecure about the near future, the increase is also likely to provide some comfort during these uncertain times.
However, worries about the spread of the Delta variant and other strains of the virus are also on the rise, especially as outbreaks that infect the highly vaccinated population seem to appear across the US. Although vaccines are highly effective at preventing severe disease, hospitalizations, and deaths, not only is vaccination still on the way, but severe cases among vaccinated people have also started to appear. The pandemic seems to provide people with new reasons to worry during the closing months of 2021, and many worries are linked to present and future financial security. That is why the unexpected rebound in retail sales provides people with new reasons to hope.
Defining the Unexpected
According to the Commerce Department, retail sales increased slightly in August, after a drop in July. The boost goes to show that the economic recovery is fluctuating, as shopping habits also change from month to month. Sales have increased 0.7% in August, after a 1.8 percent decline in July. This came as a surprise to many, as July’s contraction was greater than initially estimated, and it also seemed to point to a downward spiral in sales. With US COVID-19 related deaths also on the rise, the trend change is even more surprising.
Chris Low, chief economist at FHN Financial in New York, recently said US consumption is not dropping as fast as it seemed to be doing a month ago, despite the fading stimulus. Even more, according to the economist, the new variant of the virus that causes COVID-19 did not affect the sectors feeding into retail sales too much. According to Low, “the economy continued to hum in August.” The chief economist is not alone in saying that retail sales are on the rise. National Retail Federation (NRF) President Matthew Shay goes as far as to predict a record year for retail sales and a good holiday season for American retailers.
Is the Future Bright?
Although an increase in August sales is in itself good news for US retailers, it may be seen as an even better one when talking about the holiday season forecasts. Various companies have already predicted an important rise in year-over-year spending. Deloitte expects holiday sales to grow 7% to 9% in November and December, 2021, compared to the corresponding period of 2020, while Bain puts the growth rate at 7%. Others are even more optimistic, saying a rebound in brick-and-mortar store shopping and constant consumer demand will drive the growth rate even higher.
However, clouds still gather on the retail horizon. Supply chain issues still plague the industry, and factory closures, global chip shortage, and record-breaking port congestion are seen as problems that will continue to affect retail for months to come. The chip shortage already influenced both prices and sales, and it has become even greater during the Delta variant wave of the pandemic. While it is expected to cost the global auto industry $210 billion in revenue in 2021, it is also expected to continue to cause shortages of various electronic goods.
With Delta variant infections still surging, there is no way to know for sure what the holiday season will bring for US retail sales. However, August figures point to the fact that many people are eager to spend their money on new goods, and this tendency is likely to continue during the holidays. The NRF sees this rise in sales as a reflection of the American consumer’s enduring power, as well as proof of the US retailers’ resilience during the most difficult times. Only time can tell if power and resilience will be enough to push retail sales to new heights.
