The Wonders of Free Money in Two Pictures
Lesson of the Day
If you give away enough free money, spending recovers.
Census Report on Advance Retail Sales
The Census report on Advance Retail Sales provides half of our "Lesson of the Day".
Adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, July sales were $536.0 billion, an increase of 1.2 percent from the previous month, and 2.7 percent above July 2019.Total sales for the May 2020 through July 2020 period were down 0.2 percent from the same period a year ago.
The May 2020 to June 2020 percent change was revised from up 7.5 percent to up 8.4 percent. Retail trade sales were up 0.8 percent from June 2020, and 5.8 percent above last year.
Nonstore retailers were up 24.7 percent from July 2019, while food and beverage stores were up 11.1 percent from last year.
Retail spending rose for the third straight month despite a rise in coronavirus infections with reopenings stalled.
Spike in Government Spending
The chart from Pew shows stimulus and deficits exceed that in the Great Recession.
Since March, government stimulus authorizations (not all spent yet) total at least $3 trillion. Another $2 trillion is on the deck when Democrats and Republicans agree to another package.
That is the second half of the Free Money Wonder.
The federal government has run deficits nearly every year since the Great Depression and consistently since fiscal 2002. Through the first 10 months of fiscal 2020, the government took in $2.82 trillion in revenue and spent $5.63 trillion, for a year-to-date deficit of just over $2.8 trillion, according to the Treasury Department’s Bureau of the Fiscal Service. Through the first 10 months of fiscal 2019, by comparison, the deficit stood at $866.8 billion.
Looking at the deficit as a percentage of gross domestic product rather than in raw dollars puts it in the context of the total U.S. economy and makes comparisons over time more meaningful. As of the end of the fiscal third quarter in June, the deficit represented 13.1% of GDP, also a level not seen since World War II. By comparison, during the Great Recession in fiscal 2009, the deficit accounted for 40.2% of total spending and reached 9.8% of GDP.
Free Money Corollary Lesson
Nonstore retailer spending (think Amazon) is up 24.7 percent from July 2019
Even if you close the shops, the bars, and the restaurants, people will find a way to spend money if you give it to them.
All Continued Claims
Over 28 million people have been receiving weekly $600 checks for months. Those checks get set to everyone on state programs as well as those on federal pandemic programs.
For details and discussion, please see Initial Unemployment Claims Dip Below One Million for the First Time Since March.
Where To on Spending?
It takes about $3 trillion in free money to keep spending about where it was.
The $600 weekly PUA checks ran out for over 28 million people on July 25.
Tomorrow, the third check won't get sent due to Congressional bickering over the amount.
$600 * 28 million * 3 = $50,400,000,000.
Unless people go further into debt. Spending will drop at least that much in the absence of additional and retroactive stimulus.
In addition, people have deferred rent payments, mortgage payments, and credit card payments. Those deferrals will kick in at some point as well.
Add it all up and retail spending may be in trouble even if there is another package.
Note that Boston Fed President Eric Rosengren says "The Recovery is Losing Steam"
That what happens when free money runs out. But the debt did not go away.
Losing steam was a given: Hello. There is No Magic Money Multiplier.