US consumers spending as much as they were before COVID. But will they spend more?

It's interesting that today's retail sales report for July was portrayed as a disappointment, because to me, the numbers seemed to indicate that consumer spending continued to recover at a pretty good pace.

U.S. retail sales increased less than expected in July as consumers cut back on purchases of motor vehicles, and could slow further in the months ahead amid spiraling new COVID-19 infections and a reduction in unemployment benefit checks.

Despite the moderation in retail sales reported by the Commerce Department on Friday, sales have recouped losses suffered when businesses were shuttered to slow the spread of the coronavirus. The third straight monthly gain lifted retail sales to their highest level since the government started tracking the series in 1992. It supported the view that consumer spending would rebound this quarter after a record collapse in the second quarter.

Retail sales rose 1.2% last month after advancing 8.4% in June. Economists polled by Reuters had forecast sales would rise 1.9% in July. Sales increased 2.7% from a year ago in July.

So even with tens of millions more Americans drawing unemployment checks, there was more money spent in stores and other retail outlets than we had before COVID 19 broke out? That seems impressive to me!

But then you dig into the actual Census Bureau report, and it's the differences between retail sectors that continue to stand out. The first part I wanted to bring up was the sectors that gained as COVID-19 broke out. Grocery stores, home + garden stores, and big box stores are still getting more business than they did at the start of the year, but have generally leveled off in the last couple of months and are now modestly above January's amounts. However, online/non-store shopping continues has barely dropped off at all, and continues to be up more than 20% vs January.

One retail sector went way down as COVID broke out. But since then it has had a big turnaround, and is now doing better than it did at the start of the year.

I have no explanation for this. Is it simply people having their purchases delayed as they were locked down, and then that pent-up demand is reflected in the gains in June and July? Or are a bunch more people buying board games, books and sporting equipment because COVID World makes these items more worthwhile to have? Odd stuff.

There are a few sectors that suffered major damage as the pandemic broke up, and still haven't gotten back to where they were in January. The first two are a direct reflection of the lack of travel and lack of desire to go out to eat in the time of COVID-19, and the other continues to reflect the shift to online shopping that is going on in the non-store sector.

The continued depressed sales for bars and restaurants and clothing stores means that these places have little need to hire back much of the staff that was laid off as those places closed in March and April. And that's where the danger lies for August and future months, because those ex-workers have now lost hundreds of dollars a week in unemployment benefits, and unless they all find jobs at a nearby Amazon warehouse (and numbers indicate that they are not), it seems certain that demand is going to suffer going forward.

Let's also not forget the crater that hit consumer spending in general for March, April and May. Sure, US consumers are spending as much today as we were in the start of the year, but that's still a lot of money that was taken out of the economy, and now the government support that kept many businesses and individuals afloat is going away, at least for a while.

Which means the back-to-school shopping months of August and September loom large as an indicator where the consumer is going to go from here. If things continue to improve, then you can see where the overall recovery out of the massive COVID-19-induced hole can continue. But if things level off or decline, things could cascade down into other areas very quickly. Many people and retail businesses barely survived the 4 months of declines earlier in 2020, and another drop in the 2nd half of the year could be a finishing blow.