Chief Economist Scott Brown discusses current economic conditions.
By now, it should be clear that COVID-19 is not going to go away anytime soon. Consumers and businesses are getting used to living and working under the pandemic and some changes, such as the tendency to work from home, will likely be long-lasting. The economy is always evolving. However, rapid changes can be destabilizing. There will be a number of challenges in the new year.
The mid-month economic reports added further to picture of a mixed recovery. Retail sales posted a stronger than expected gain in September, boosted partly by a seasonal quirk. Department store sales jumped 9.7% (-7.0% before seasonal adjustment, vs. -15.5% in September 2019) and clothing store sales surged 11.0% (-4.3% before seasonal adjustment, vs. -18.0% in September 2019). Consumers didn’t exactly “flock to the mall.” August (not September) is the month for back-to-school sales. Reduced strength this August led to a smaller seasonal decline into September – hence, a strong seasonally-adjusted gain. Still, there were gains in other areas. Motor vehicle sales rose 3.6% (-2.6% before seasonal adjustment), up 9.1% from February.
Overall retail sales were 4.2% higher than in February, although results are mixed across sectors. Auto dealerships, home furnishings, home improvement, sporting goods, and grocery stores are all doing better than before the pandemic. However, department stores, clothing stores, gasoline sales, and restaurants, while improved in the last few months, remain far below where they were in February. Moreover, the major hit from the pandemic has been in consumer services and it will be a long time before we get a full recovery in tourism, air travel, and spectator events.
Manufacturing output unexpectedly fell 0.3% in September (-5.7% y/y). Despite stronger retail auto sales, motor vehicle production fell 4.0%, down 5.5% from February (while consumer demand is strong, fleet sales to business are weak). Manufacturing has adapted to working under the pandemic, but that’s not been easy. Social distancing has slowed production to some extent, and supply chains are still not functioning smoothly. There were anecdotal reports of stockpiling in supplies and materials before strict social distancing guidelines this spring. Manufacturing inventories edged up in 2Q20, while wholesale and (especially) retail inventories fell. In contrast, manufacturing inventories fell in the first two months of 3Q20, while wholesale and retail inventories have risen.