WASHINGTON (Reuters) – U.S. retail sales unexpectedly increased in August, likely boosted by back-to-school shopping and child tax credit payments from the government, which could temper expectations for a sharp slowdown in economic growth in the third quarter.

According to the Commerce Department, retail sales increased by 0.7% on Thursday. Retail sales declined 1.8% in July, instead of 1.1% previously reported.

According to Reuters, economists had predicted retail sales falling 0.8%.

The global shortage in microchips is causing automakers to stop production. This causes a drop in retail sales.

Some electronic products are also suffering from shortages due to the current semiconductor crisis, made worse by recent infections caused by the Delta virus of the coronavirus. The supply shortages are also being exacerbated by congestion at Chinese ports.

Although retail sales have been stable, spending has shifted from goods to travel and entertainment. However, the soaring COVID-19 infection rate is likely slowing down the service spending boom.

While most retail sales involve goods, the majority of consumers spend on services, such as travel, healthcare and lodging. The only service category included in retail sales is restaurants and bars.

After a 1.9% drop in July, retail sales rose 2.5% to exclude automobiles, gasoline and building materials, as well as food services.

Core retail sales are closely related to the gross domestic product’s consumer spending. In July, they were estimated to have fallen 1.0%.

Many school districts opened their 2021-2022 academic years in August. After last year’s transition to online classes due to the COVID-19 epidemic, in-person learning is resuming. It marks the return to back-toschool shopping. The expanded Child Tax Credit program will continue through December for qualifying households that were eligible in July.

GROWTH ESTIMATES CUT

Tanking motor vehicle sales and struggles by businesses to replenish stocks have prompted economists to slash their GDP growth estimates for the third quarter.

JPMorgan’s (NYSE:) economists reduced their GDP growth projection to 5.0% annually from a 7.0% rate on Wednesday. Goldman Sachs (NYSE 🙂 lowered its forecast to a 3.5% annualized rate earlier this month from a 5.25% pace.

Federal Reserve’s report “Beige Book” last week showed that “economic growth has slowed slightly, to a moderate pace from early July through august.” 2.6% was the rate of economic growth in the second quarter.

Michael Feroli in New York, JPMorgan’s chief U.S economist said that “We expect domestic demand will step up next quarter.” This assumes that the Delta headwind will fade and that motor vehicle industry issues gradually subside.

Americans currently have $2 trillion worth of savings left over from the pandemic. As companies try to fill record-breaking 10.9 million jobs, wages are on the rise.

On Thursday, a separate Labor Department report showed that initial claims for state unemployment benefits rose by 20,000 to 332,000 in the seasonally adjusted week ending Sept. 11. According to economists, the number of applications was expected at 330,000 for this week.

The Hurricane Ida disaster that decimated U.S. off-shore energy production in the United States and cut power supply to Louisiana likely helped boost claims. Ida, which was the worst hurricane to ever hit the U.S. Gulf Coast in its history, also devastated Mississippi, causing massive flooding in New York, and New Jersey.

The number of claims has dropped to an all-time low of 6.149 millions in April 2020. Healthy labor market conditions are characterized by a range of 200,000-250,000.