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Brighter days, thanks to the unsinkable US consumer

·Editor focused on markets and the economy
·3 min read
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This article first appeared in the Morning Brief. Get the Morning Brief sent directly to your inbox every Monday to Friday by 6:30 a.m. ET. Subscribe

Friday, September 17, 2021

The American consumer is saving the world, again

For weeks, markets have been unsettled by relentless jitters about COVID-19 — and more recently, widening concerns about how a possible slowdown in China may drag on global growth.

However, U.S. consumers are riding to the rescue — yet again — by spending with reckless abandon in the face of potentially stagnating growth. August’s retail sales surprised to the upside, and although July’s data saw a sharp downward revision, National Retail Federation (NRF) calculations showed that sales have spiked by 12% year-over-year.

It gets better: Through August, the NRF estimates that sales are 15% higher than the comparable year-ago quarter, putting 2021’s retail sales on track to grow by double-digits from 2020, to at least $4.4 trillion. That’s unequivocal good news for an economy that’s ⅔ powered by consumer spending.

According to NRF chief economist Jack Kleinhenz, “the consumer remains rock solid despite the trifecta of macroeconomic headwinds we’ve seen this year, including tapering off of government stimulus, elevated COVID-19 infections and ongoing supply chain challenges in the form of shortages of labor and goods.”

Even in the face of “disjointed” return to schools, the data “pave the way for sturdy consumer spending and a strong economy in the fourth quarter,” Kleinhenz added.

Indeed, there’s at least another reason Americans appear poised to continue opening their wallets. Although restaurants and bars are certainly feeling the chill of soaring COVID-19 infections, the jobs market continues to defy gravity.

Jobless claims in the latest week ticked slightly higher, primarily due to the aftershocks of Hurricane Ida, but remain within range of pandemic-era lows. And Wall Street is becoming more convinced that the end of generous unemployment assistance will bolster job creation even more, especially as children return to school.

In a rare show of bipartisan unity, Yahoo Finance’s Denitsa Tsekova reported on Thursday that not a single U.S. governor has opted to extend supplemental jobless benefits, despite the Biden administration’s request to do so.

Along those lines, Goldman Sachs estimates the end of unemployment assistance represents a “large boost to jobs growth” through year’s end to the tune of 1.3 million, and a drop in the unemployment rate to 4.2%.

“Although [unemployment insurance] benefit expiration is the main reason we expect a 1% cumulative drop in real disposable income between now and year-end, we are less concerned that declining income and spending will slow job growth, mostly because labor demand remains at an extremely elevated level,” Goldman’s analysts wrote on Thursday.

Taken together, it suggests that, regardless of lingering fears that some are holding out in fear of contracting COVID-19, countless workers will start venturing out to fill some of the nearly 11 million vacant positions across the country.

And more workers returning to the labor market almost assuredly translates into higher consumer spending — meaning stronger growth.

By Javier E. David, editor at Yahoo Finance. Follow him at @Teflongeek

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