WASHINGTON (Reuters) – US retail sales fell for the third month in a row in December as renewed measures to slow the spread of COVID-19 caused job losses, further evidence that the injured economy slowed significantly in late 2020.
However, the drop in sales reported by the Department of Commerce on Friday is unlikely to push the economy into recession again, as other data shows that factory production accelerated last month. There is also cautious optimism that nearly $ 900 billion in additional pandemic relief provided by the government in late December will provide a backstop.
The ebbing economic momentum, which appears to have spilled over into the new year, could convince the US Congress to approve President Joe Biden’s ambitious $ 1.9 trillion fiscal stimulus plan, which includes bolstering the response to the virus and direct aid to households and small businesses.
“That should make Congress more willing to do something about Biden’s wish list,” said Steven Blitz, chief US economist at TS Lombard in New York. “Critical to Biden’s story is that the virus itself is causing the downturn, not fundamental problems with the economy, and that’s what needs to be done to address it.”
Retail sales fell by 0.7% last month. The November data was revised down to show that sales were down 1.4% from 1.1% as previously reported. Sales increased by 2.9% on an annual basis.
The monthly sales decline was driven by a 4.5% drop in restaurants and bars after many authorities banned indoor dining during the holiday season. Online sales plummeted by 5.8%. Revenues at electronics and appliance stores fell 4.9%.
Consumers are also cutting back on their spending on sporting goods, hobbies, musical instruments, bookstores and liquor stores. That offset a 1.9% recovery in sales at car dealers and a 2.4% increase in revenues at clothing stores. There were also increases in sales at building supplies stores and health and personal care outlets.
Excluding automobiles, gasoline, construction materials and food services, retail sales fell 1.9% last month after a downwardly revised decline of 1.1% in November. These so-called core sales correspond most closely to the consumer spending component of the gross domestic product. They were previously estimated to be down 0.5% in November.
“There were plenty of culprits that ruined the holiday spirit, including a frightening health situation, increasing layoffs and an impending decline in unemployment benefits,” said Lydia Boussour, an American senior economist at Oxford Economics in New York. “Biden’s ambitious fiscal agenda could drive up household spending during the delicate vaccine rollout phase.”
Optimism over vaccine distribution limited a drop in consumer confidence in early January after supporters of President Donald Trump stormed the Capitol in an attempt to dissuade lawmakers from certifying Biden’s victory in the Nov. 3 election. In a second report on Friday, the University of Michigan said the consumer sentiment index fell to 79.2, from 80.7 in December.
US stocks traded lower. The dollar gained against a basket of currencies. US Treasury bond prices rose.
LAID OFF
The sharp drop in core retail sales prompted economists to cut their consumer spending and GDP growth estimates for the fourth quarter. The government reported last week that the economy will cut jobs for the first time in eight months in December. Further job losses are likely in January as the number of new claims for unemployment benefits has risen sharply in the first week of the month.
Rampant coronavirus infections and government delays in approving more money to help businesses and the unemployed are behind the loss of economic momentum. Fourth quarter growth estimates are around 5% year-on-year, largely due to an inventory build-up, which is driving production.
The economy grew 33.4% in the third quarter after contracting 31.4% in the April-June quarter, the deepest since the government began tracking records in 1947.
In a third report on Friday, the Federal Reserve said manufacturing output rose 0.9% last month after rising 0.8% in November. That was the eighth consecutive monthly gain in factory production. Manufacturing is supported by a shift in demand for goods from services.
Production in factories increased by 11.2% in the fourth quarter.
“Manufacturing is weathering this wave of confirmed COVID-19 cases clearly better than earlier this year,” said Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Pennsylvania. “Manufacturers are busy, because stocks have to be rebuilt and demand for consumer goods remains high for the time being.”
A fourth report from the Department of Commerce showed that company inventories increased 0.5% in November.
Although economic growth is slowing, inflation is stirring. A fifth report from the Labor Department shows that the producer price index for final demand rose 0.3% in December, after rising 0.1% in November.
“Additional government spending and a fuller reopening of the economy that will push back demand are all factors that will boost inflation in the coming months,” said Rubeela Farooqi, chief US economist at High Frequency Economics in White Plains, New York.
Reporting by Lucia Mutikani; Adaptation by Chizu Nomiyama and Paul Simao