Uncle Sam Was Back Having Consumers’ Backs

American consumers were back in action in January 2021. The “unemployment cliff” along with the slowdown and contraction in the labor market during the last quarter of 2020 had left retail sales falling backward with employment. Seasonally-adjusted, total retail spending had declined for three straight months to end last year.

The latest updated estimates from the Census Bureau, released today, show that December’s drawback, in particular, was much larger than previously figured – small wonder given just how many unemployed Americans ended up falling off that “cliff”. Revised downward by an unusually large -$3.4 billion, it really had been the weakest holiday season since 2009’s.

Uncle Sam, however, came riding to the rescue at the end of last year. Fixing (at least re-upping) first the unemployment insurance mess, in behind was a series of $600 payments that put digital cash money into most American pockets (who needs the Fed, asks MMTers).

The injection of stipends account for the boosted spending in January 2021.

By just how much, it’s not clear. For one thing, spending activity has become highly volatile given what’s driving it. Government and politics together are not a good way to produce a solid, straight-line recovery. As retail sales had peaked back in September 2020 and then fell back, the exceedingly large margins of consumer economic activity get bounced around for these non-economic reasons.

And then for January, for reasons that aren’t clear, the Census Bureau applied a much larger seasonal adjustment than otherwise seems warranted (residual seasonality?) Unadjusted, total retail sales rose 5.80% year-over-year last month. While somewhat better than the pre-COVID figures which had been closer to recessionary 3% levels, this is still it’s nowhere near “V” shaped even with all the $600 payments floating around.

Seasonally-adjusted, however, that series indicates instead a 7.3% gain in January 2021 when compared to January 2020. Typically, a discrepancy that large between adjusted and unadjusted is easily attributable to holiday differences. In this case, outside of New Year’s Day being on a Friday, and thus subtracting activity from the first weekend being overly revelrous, there’s no obvious reason for a higher seasonally-adjusted estimate.

Using it anyway, what we find is simply that consumer spending which didn’t happen during the final three months of 2020 was made up in the first one of 2021.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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