While much of the service sector continues to struggle to get back to previous levels of activity, total spending in the retail sector1 has pretty much returned to normal. That’s the good news.
But as we have noted before, retail has seen some dramatic shifts, and the recovery is highly uneven within the sector. A combination of varying shutdown rules, changing consumer needs and changing shopping habits has created clear winners and losers.
First, the big picture. Retail sales in July, 2020 were 5.8 percent above sales in July 2019: consumers are catching up. Retail sales for the first seven months of 2020 were up 0.7 percent over the first seven months of last year, which puts 2020 sales slightly behind 2019 after accounting for inflation and population growth. So, in total, a pretty good picture, considering uncertainty in the economy and the severe drop in sales during the shutdown.
But within that total, growth and decline are all over the place. Figures 2 and 3 show the variation in retail sales growth and the way in which sales have shifted from one type of store to another. Remember, the data is for store categories, not the merchandise itself: a sleeping back purchased at Costco will show up under “general merchandise” whereas a sleeping bag purchased at REI will show up under the “leisure goods” sector.
The obvious winner is the non-store retail category, which includes Amazon. Food stores saw increased sales as people ate more at home and less in restaurants. Growth in the building materials and garden category reflects the home improvements and landscaping that took place as people were stuck around the house. General merchandise stores includes the big boxes, like Costco, Fred Meyer and Walmart, and these remained open during the shutdown, taking sales away from the specialty retailers which had to remain closed.
The losers tend to cluster around non-essentials like furnishings, appliances and clothes. Gasoline sales are still below normal, but motor vehicle sales are rebounding: vehicle sales in July were up six percent from July 2019. The biggest concern will be clothing, which suffered when malls closed and people had little reason to dress well. The delayed back-to-school season won’t help, nor will continued work from home patterns. This would seem to be the sector that will have the most difficulty coming back, as less catch up buying is happening: July 2020 clothing sales were 21 percent behind sales in July 2019.
While the rebound in retail is undeniably good news, it will not rescue the rest of the economy. Spending on durable and non-durable goods accounts for less than one third of household spending, so the heavy lifting of economic recovery will continue to fall on the services sectors. The advance report on second quarter services will be released August 19.
*The retail sector encompasses categories 44 and 45 of the North American Industry Classification System (NAICS). The Census Bureau’s Monthly Retail Trade Report also includes the food service sector which falls under NAICS 722. This report only covers NAICS 44 and 45.