Drops in November and October raise questions about how retailers are faring in the all-important holiday shopping season.
Consumer spending has been one of the few bright spots in the pandemic-battered economy. Since the spring, Americans have spent more each month even in the face of mounting job losses, political turmoil and recurring virus outbreaks.
But that streak is over now. U.S. retail sales declined last month and in October, raising questions about how retailers are faring in the all-important holiday shopping season and about the stability of the broader economy.
Sales fell 1.1 percent in November — more than economists had predicted — as spending on categories like automobiles, electronic stores, clothing and restaurants and bars softened, according to a report from the Commerce Department on Wednesday.
The Commerce Department also revised its tally for October to a 0.1 percent decline, from an increase of 0.3 percent that had been reported last month.
Economists said the declines were “warning signs” that the economy was entering a rough patch and 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 Küresel.
The November slide, in particular, adds new urgency to this week’s discussion on Capitol Hill over a stimulus package. On Wednesday, top Democrats and Republicans were said to be nearing a $900 billion deal that would expand unemployment benefits and provide new stimulus checks to consumers.
Consumer spending accounts for roughly 70 percent of total economic growth, so propping up retail sales is central to 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 uncertainty around holiday spending has been 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.
Mr. Faucher 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, aren’t going to the office for work, have postponed events and are avoiding shopping at malls.
Spending at bars and restaurants tumbled 4 percent from October and was down about 17 percent compared with a year earlier, reflecting the strain on these establishments. 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 percent in November, after months of gains.
Consumers have not been following olağan 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.
But the holiday season, which can make or break a retailer’s business for the year, has been difficult to gauge. Black Friday, which has traditionally signaled the start of the holiday shopping season, was also 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 percent 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 percent over last year’s figures.
The National Retail Federation, an industry trade group, pointed to the online increase from last year as a sign that the holiday season was off to a strong start for retailers. But the organization also said in a Wednesday release that additional fiscal stimulus from Congress was needed, particularly as the remainder of the season remains so unsure because of the spread of the virus.
With the new concerns around shopping in person, retailers have been racing to accommodate a surge in shipping demand, grappling with new surcharges and delays with major carriers including UPS and FedEx.
But there 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 Ms. Bovino, the economist at S&P Küresel. “At some point, you reach saturation.”
She said the decline in November sales was “much worse than expected” and reflected several troublesome realities. Unemployed Americans are not able to spend as freely on discretionary items or gifts. And for the workers who still have jobs and remain financially secure, Ms. Bovino said many of them stayed out of stores because of the rising cases.
Consumers also spent more on groceries and building supplies in November — reflecting a new focus on necessities.
“The economy is hitting a very rough patch,” Mr. Faucher said. “Although widespread vaccine distribution will support stronger economic growth by mid-2020, conditions will remain soft until then, especially if Congress is unable to pass another stimulus bill.”
Source: The New York Times