After plummeting earlier this year thanks to the coronavirus crisis, retail sales began to bounce back in May as some Americans returned to shopping and eating out, rising by a record 17.7 percent over the previous month, the Census Bureau reported Monday. The news lifted stocks, and gave our president, who is staking his reelection hopes on the possibility of a speedy, v-shaped recovery, something to bugle about.
But if you scratch even lightly beneath the headline numbers, it’s clear that May’s retail figures are, at most, a reason for cautious optimism about the economy, not a sign that it’s headed for instant liftoff. The fact that Trump is hyping them anyway points to the unfortunate reality that our president and his allies in Congress are now seizing on pretty much any encouraging short-term data as an excuse to pretend that everything is already going swell, rather than take the steps that are almost certainly necessary to set us on a path to full recovery. In other words, good news about the economy today is probably bad news for the economy tomorrow.
Why temper your excitement about Americans going back to the mall? For starters, retail sales are still very much in a hole, down 6.1 percent compared with last May. That’s not as bad as the depths of the Great Recession, when retail declined as much as 11.5 percent on a year-over-year basis, but it’s not great.
And for many brick-and-mortar retailers, the hole is far deeper. Year-over-year sales at clothing stores were down 63 percent in May; at fast food chains, restaurants, and bars, they were down 39 percent. Those industries are responsible for an enormous number of jobs, and they are still very much suffering. Were it not for the fact that Americans are spending more money at Amazon or on groceries in the era of social distancing, the overall picture for retail would look much worse.
Finally, there is no reason to assume the recovery will keep up its current pace. Last month, the Congressional Budget Office forecasted that the country’s comeback would start off fast as governors and mayors dropped their stay-at-home orders and allowed stores to reopen, then slope off, since some social distancing was likely to continue, and many states and local governments would have to slash spending to deal with tax shortfalls. I’ve taken to calling this next graph the drunken-square-root-shaped recovery. The Atlantic’s Annie Lowrey calls it the “flaccid check mark.” Either way, it’s entirely possible that we’re just at its easy, early stages and that things will only get harder from here, especially if Congress doesn’t pony up more cash to help families. After all, one likely reason retail sales bounced back as much as they did in May is that the government provided households with so much cash aid that personal incomes actually rose, despite mass job losses. If that assistance doesn’t get renewed, growth could easily slack off.
This is a point that Jerome Powell has been making to pretty much anybody who will listen. The Federal Reserve chair has said he believes Congress needs to provide more fiscal support to the economy in the months ahead. While Donald Trump was busy trying to get his followers amped about retail numbers, Powell was on the Hill on Tuesday, telling lawmakers that “significant uncertainty remains about the timing and strength of the recovery,” and warning them that households may need more help.
But Trump and his Republican allies in Congress aren’t listening. Instead, they are waiting until July to negotiate the next coronavirus relief package, with the hope that there will be enough good economic news by then to relieve some pressure to provide aid to states or extend the enhanced, $600-a-week unemployment benefits that are keeping many Americans afloat. In the meantime, they’re grasping at any good bit of economic data that comes along to argue that the country is a rocket ship taking off, as Trump put it after the last jobs report, despite the fact that upward of 29 million people are still on the unemployment insurance rolls. The more good news we get in the next month, the more we have to worry about what’s coming a year from now.