The New York Times is reporting this week that while consumer spending has been one of the few bright spots in the pandemic-battered economy even in the face of mounting job losses, political turmoil and recurring virus outbreaks, “that streak is over now.” U.S. retail sales declined last month and in October, raising questions about how retailers are faring in the holiday shopping season--and about the stability of the broader economy, the Department of Commerce said on Wednesday.
Sales fell 1.1% in November — more than economists had predicted — as spending on categories like automobiles, electronic stores, clothing and restaurants and bars softened, Commerce said.
Commerce also revised its tally for October to a 0.1% decline, from an increase of 0.3% that had been reported last month.
Economists said they see the declines as “warning signs” that the economy is entering a rough patch and is in need of a jolt from another round of government stimulus. “When the U.S. consumer fails to spend, the world's economy feels it,” said Beth Ann Bovino, chief U.S. economist at S&P Global.
The November slide, in particular, adds new urgency to this week's ongoing discussion on Capitol Hill over a stimulus package.
Consumer spending accounts for roughly 70% of total economic growth so propping up retail sales is central to “nearly any” plans to stoke a recovery. And economists have been warning that failure to enact more financial support for the unemployed would eventually jeopardize the progress made in reviving the economy.
“Weak retail sales in the fall, along with a recent increase in unemployment insurance claims, are warning signs for the economy at the end of 2020,” Gus Faucher, chief economist at PNC Financial Services Group, said in a research note.
The usual uncertainty around holiday spending is being exacerbated as retailers pushed annual sales events into October in a bid to jump-start the season and prevent crowded stores and shipping delays in November. Many major chains reported sales gains in October, but they were not certain about how that would affect spending in November and December, he said.
He also noted that the boom in shopping this spring after virus restrictions were lifted reduced “the need for purchases at the end of the year.” Amazon's “Prime Day,” an annual event for online deals, was held in October, and spurred most major chains to introduce bargains around the same time, which may have also encouraged earlier holiday spending.
The report on Wednesday showed the steepest declines at electronics and appliance stores, gas stations, clothing stores, department stores and bars and restaurants. The decline in apparel spending has been part of a broader shift this year, as many Americans remain isolated at home, make fewer trips to the office for work, have postponed events and are avoiding shopping at malls.
Spending at bars and restaurants tumbled 4% from October and was down about 17% compared with a year earlier, reflecting the strain on these establishments, the report said.
With restrictions on indoor dining taking effect again in cities like New York and public officials warning of a difficult winter ahead, spending at restaurants is likely to remain lower for several months. Spending on gasoline also declined in November, as more families opted not to travel for Thanksgiving; many people are planning to stay home for Christmas also. Auto sales fell 1.7% in November, after months of gains.
Consumers have followed abnormal shopping patterns this year, making month-to-month sales difficult to predict. Some analysts had not expected the rebound in sales to have lasted so long, given the grim economic realities for millions of Americans. By the summer, retail sales had returned to pre-pandemic levels, helped by previous rounds of stimulus, job growth and low interest rates.
This makes the important holiday season especially difficult to gauge. Black Friday, which has traditionally signaled the start of the holiday shopping season, was largely a bust for many retailers as cases were flaring. Some companies reported that in-person traffic that day declined by as much as 50% from last year, as shoppers concerned about the virus stayed away from the stores. Still, online sales have been strong through the holidays and November sales were up 4% over last year's figures.
The National Retail Federation pointed to the online increase as a sign that the holiday season was off to a strong start for retailers. But the organization also said that additional fiscal stimulus from Congress is needed.
Also, there likely are limits on how much the boom in online shopping can prop up the overall economy. “There are only so many televisions you can buy,” said Bovino, the economist at S&P Global. “At some point, you reach saturation.” She said the decline in November sales was “much worse than expected” and reflected several troublesome realities.
So, we will see. The outlook for another stimulus appears brighter as this week winds down and political uncertainty has declined as the electors have chosen a new president-elect. However, the retail spending jolt provides another indicator that the new administration will face serious economic challenges and the coming economic battles should be watched closely as they emerge, Washington Insider believes.