U.S. retail sales bounced back by record 17% in May from April's low

U.S. retail sales bounced back in their biggest month-to-monthjump everon record in May, as COVID-19 lockdowns ended and consumers went out to spend money again.

Retail sales rose by 17.7 per cent in May, more than twice what economists were expecting, the U.S. Department of Commerce said Tuesday.

Sales fell by 8.3 per cent in March and a further 14.7 per cent in April after the coronavirus that causes COVID-19 prompted much of the North American economy to shut down starting in the middle of March.

But many states started reopeningin Mayeven as their COVID-19 cases continued to grow, and it seems consumers started to spend againon just about everything.

Motor vehicle sales jumped 44.1 per cent, building materials were up 10.9 per cent, non-store sales rose nineper cent, and restaurant receipts surged 29.1 per cent.

Still, the pandemic's damage to retail sales remains severe, with purchases still down 6.1 per centfrom a year agoand almost eight per cent below where they were in February.

The spending seems to have spurred at least a temporary surge in rehiring. In May, employers added 2.5 million jobs.

But economists are watching closely to see if the recovery is sustained or fleeting.

"This may very well be the shortest, but still deepest, recession ever," said Jennifer Lee, a senior economist at BMO Capital Markets. But, she said, it's "not likely that we'll see a repeat in June as this is pent-up demand unleashed in one month."

Economist Sri Thanabalasingam at TD Bank was impressed by the rebound, but also expressed concern about whether it can last.

"Wow, consumers came back in a big way in May as states began reopening their economies. Today's report provided further evidence that the worst of the COVID-19 economic shock was behind us,"Thanabalasingamsaid. "While consumers readily loosened their purse strings last month, it is not an indication that things are back to normal."

The virus-induced recession not only deeply slashed consumer spending, it also appears to have ushered in a major shift in where the remaining spending is happening.

Online sales are booming

The changes forced by the coronavirus have aided online retailers and building materials stores and other outlets that stayed open during the outbreak. Other businesses are facing persistent financial strains.

Sales at non-store retailers, which include internet companies like Amazon and eBay, rose nineper centin May after posting growth of 9.5 per centin April. They are up a sizable 30.8 per centfrom a year ago.

Building materials stores enjoyed a monthly gain of 10.9 per centlast month and annualized growth of 16.4 per cent. Grocers have posted a 14.4 per centannual sales increase, reflecting fewer people eating out at restaurants because of the pandemic.

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Other sectors in retail posted spectacular growth in May, yet still face an uncertain future given the blows they absorbed in March and April. Clothiers achieved a stunning 188 per centmonthly gain, but still remain down 63 per centover the past 12 months. Furniture store sales surged 90 per centlast month, but they're still down more than 21 per centon the year. This same pattern holds for restaurants, electronics stores, department stores and auto dealers.

There are winners and losers across all sectors of the economy.

Macy's CEO Jeff Gennette has said that his company's reopened stores are regaining 50 per centof their typical business. Teen retailer American Eagle Outfitters is faring even better, averaging roughly 95 per centof its normal sales levels.

But analysts cautioned that some of the gains thus far probably reflect the impact of temporary government aid and expanded unemployment benefits in the face of a deep recession.

"With fear of a second wave of infections putting limits on household activity, and stepped-up unemployment benefits, Economic Impact Paymentsand the small-business Paycheck Protection Program all set to expire in coming weeks, the economy's gains remain vulnerable," saidKarl Schamotta, chief market strategist at Cambridge Global Payments.

The U.S. jobless rate is a historically high 13.3 per centby the government's standard measure and an even worse 21.2 per centby the broadest gauge of unemployment. For now, Americans are spending disproportionately more on essentials and less on luxuries.

"Our wants and our needs have changed permanently until we find a health fix," said Stacey Widlitz, president of SW Retail Advisors, a retail consultancy. "Shoppers are focusing on comfort, home and well-being."

Retail bankruptcies

The lockdowns sent many mall-based chains further into peril. These retailers furloughed workers, slashed costs to preserve dwindling cash reserves and, in the cases of Neiman Marcus, J.Crew and JC Penney, filed for bankruptcy protection.

In Canada, shoe chain Aldo and women's wear line Reitmans have sought creditor protection.

Coresight Research, a retail research firm, expects between 20,000 and 25,000 stores in the United States to close this year, about 60 per centof them in malls. That's up from the firm's previous estimate in mid-March of 15,000 closings, and it would surpass the record 9,000 storeclosures last year. In the past week, Zara, Children's Place and Signet Jewelers all announced hundreds of store closures and stressed the rising importance of their online presence.

"The retail sector was already over-stored before COVID reared its ugly head," said Craig Johnson, president of Customer Growth Partners, a retail consultancy. "This is a forced rightsizing."