Yet, Federal Reserve Chair Jerome H. Powell warned on Tuesday that the economic road ahead remains long and uncertain with 20 million jobs lost since February, a reported unemployment rate at 13.3 percent, the highest level since the Great Depression, and $6.5 trillion in household wealth gone in the first quarter. Even with improved retail numbers, overall levels are still down nearly 8 percent compared with February.
“Significant uncertainty remains about the timing and strength of the recovery,” Powell told a Senate banking panel. “Until the public is confident that the disease is contained, a full recovery is unlikely,” he added.
The speed and degree to which the economy recovers portends high political stakes this fall. President Trump plans to make these signs of an economic recovery front and center in his political campaign, while Joe Biden plans to sharpen attacks on Trump’s handling of the crisis, emphasizing the heavy toll on workers.
Spending rose across all categories in May, the Commerce Department reported Tuesday. Sales at clothing stores nearly tripled from a month earlier. Some of the largest gains were at furniture stores, where sales rose 90 percent, and at sporting goods, musical instrument and book stores where they grew 88 percent. Sales in electronics and appliance retailers were up 51 percent. Restaurants and bars, meanwhile, notched a 29 percent increase in sales, while online sales rose 9 percent.
The monthly jump in retail sales sent markets soaring. The Dow Jones industrial average surged more than 3 percent at its open, but scaled back its gains to 2 percent, as investors cheered the retail sales, as well as news of a possible medical treatment for covid-19. The Standard & Poor’s 500 index closed up 1.9 percent, and the tech-heavy Nasdaq composite closed up 1.75 percent.
Yet, economists continue to warn that the economy remains on shaky ground. Powell on Tuesday emphasized that both the public health crisis and recession have unevenly targeted the country’s lowest-income households, noting that some of the jobs lost to this economic crisis could be gone forever.
“The longer the downturn lasts, the greater the potential for longer-term damage from permanent job loss and business closures," he said to the Senate Banking, Housing and Urban Affairs Committee Tuesday morning. “Long periods of unemployment can erode workers’ skills and hurt their future job prospects.”
Service-sector jobs in retail and hospitality were among the first to go when the pandemic hit. But the impact has cascaded into white-collar industries in recent weeks, with major airlines and professional services firms announcing fresh rounds of layoffs. Economists say it could take years for retailers and shoppers to bounce back from the economic devastation of the ongoing pandemic.
“It is too early to celebrate,” economist Diane Swonk wrote in a note to clients on Tuesday. “Stimulus checks, along with enhanced unemployment benefits, helped many to weather the shutdowns, but food lines lengthened as only about half of renters were confident they could pay rent in May. High-end consumers were much more confident as their stock portfolios rallied. They also may be feeling a false sense of security in their jobs."
The May bounce in retail sales follows two months of record-breaking declines, as Americans abruptly pulled back on discretionary spending. Retail sales fell 8.3 percent in March, and 14.7 percent in April, which is a revised figure.
“We’re seeing some rebound, but overall these are still … low numbers,” said Andrew Lipsman, a retail analyst for market research firm eMarketer. “The reality is, we still have high unemployment numbers, and despite the feel-good momentum of the last month, the consumer economy is still not on very strong footing."
A number of national chains — including Nordstrom, Gap and Macy’s — reopened their stores last month with new safety measures and curbside pickup options. Retailers say shoppers have begun trickling back, albeit cautiously. Although spending at clothing stores nearly tripled in May, overall sales are still down 63 percent from a year ago.
At Adeline, a women’s clothing boutique in Dallas, sales have been steadily rising since reopening the first week of May, with shoppers stocking up on summer clothing and dresses for graduation parties.
"The first couple of weeks after we reopened were slow, but it keeps picking up as the weeks go by,” said owner Graeme Gehring. “Now we’re super busy every day. People are excited to buy cute clothes.”
Consumer spending, which typically drives 70 percent of the nation’s economy, has dropped sharply in recent months. Americans spent nearly 14 percent less in April than they did in March, one of the steepest declines on record, according to Commerce Department data.
The pandemic has also hastened a wave of retail bankruptcies, with iconic chains such as J. Crew, Neiman Marcus and J.C. Penney filing for Chapter 11 protection in May.
“The disruption caused by the pandemic has done strange things to our perception of numbers,” Neil Saunders, managing director of GlobalData Retail, wrote in a note to clients. “Usually, a 7.7% year-over-year decline in retail sales would be an unmitigated disaster — but in the context of everything that is going on, the outcome is palatable."
Some 20 million Americans are still without jobs. Even though U.S. employers added 2.5 million jobs in May, economists say ongoing uncertainties about the public health crisis and the economy have made it difficult to know when consumers and businesses might return to spending levels more common in the past few years.
Pool company American Sale shuttered all eight of its Chicago-area locations in late March. By the time it reopened in early May, demand for pools, hot tubs, trampolines and swing sets was booming. Sales are up about 30 percent from a year ago.
"Business has jumped considerably," said Bob Jones, the company's president. "During the lockdown, you had all of these people at home, saying 'I'm not traveling or taking vacations. What can I do instead?'"
He said stimulus checks helped prop up many households, at least temporarily. But the looming uncertainty also has many business owners worried about how the coming months could play out.
“The numbers are improving because of staged reopenings around the country, but the economy will remain soft for some period of time," said Brian Marks, an economist and senior lecturer at the University of New Haven. “People need to have trust, confidence and faith — both in the economy and in monitoring and testing [of the coronavirus], social distancing and, ultimately, a vaccine. But we’re not there yet."
In all, consumers spent $485.5 billion in May on retail goods, groceries and gas. And 17 percent of sales —$86.4 billion — were purchased online.
E-commerce, which is up 31 percent from a year ago, has emerged as a bright spot during the pandemic, as homebound Americans turn to the Internet for groceries, books, furniture and other discretionary goods. Although online shopping has been on the rise for years, analysts say the recent lockdown orders have sped up the process, resulting in long-term shifts in how and where people shop. Online sales at Target have more than doubled during the pandemic, with e-commerce growing 282 percent in April alone.
“We’ve just seen Cyber Monday occur almost every day except the volume is twice the size,” Target chief executive Brian Cornell told investors last month.