Retail sales soared by 17.7% in May, the biggest month-over-month increase on record, the Commerce Department reported on Tuesday.
The May figures, which easily beat analysts’ estimates but are still below pre-pandemic levels, was most likely fueled by a combination of pent-up demand and stimulus checks received in late April and early May.
May’s strong retail sales could be a sign that consumers will be resilient as the economy recovers.
While that momentum may not continue into June at the same pace, May’s strong report could be a sign that consumers will be resilient as the economy recovers.
Before the pandemic, consumers, buoyed by low unemployment, strong wages and general optimism, demonstrated resilience in their spending and helped prolong the decade-long economic expansion. But since the onset of the coronavirus, more than 40 million people have lost their jobs, a dislocation that will take many months to repair.
As a result, we still don’t see a V-shaped recovery taking place. But if consumer spending can continue to rebound, even if it is below the highs seen before the pandemic, it will play a major role in getting the economy moving toward a recovery that looks more like a Nike swoosh, with momentum starting to build in the first quarter of 2021.
Still, retail sales are still a long way from where they were in February, before the impact of COVID-19 hit the United States. The three-month average annualized pace declined by more than 40%, indicating that the second-quarter gross domestic product will not be pretty.
But retailers can only hope that this is the start of an upward trend. The severity of the resurgence of the virus in the southern United States, as well as whether it makes its way back to other parts of the country that are currently headed in the right direction, will have a significant impact on the strength of retail sales.
The unique nature of this economic downturn makes it critically important to understand how different parts of the ecosystem have been affected by the pandemic. During the period when many states had imposed stay-at-home orders, non-store retail and e-commerce sales in general, as well as grocery store sales, rose sharply.
As these same states began to reopen in May, pent-up demand led to sharp month-over-month increases in categories such as clothing, furniture and sporting goods. Decisions driven by the pandemic patterns will continue to affect different sectors in different ways throughout the summer and fall. For example, whether or not schools open in the fall will most likely make or break many clothing stores in the third quarter.
For more information on how the coronavirus is affecting midsize businesses, please visit the RSM Coronavirus Resource Center.