WASHINGTON (Reuters) – US retail sales fell for the third consecutive month in December, as new measures to slow the spread of COVID-19 caused job losses, further evidence that the battered economy lost considerable speed in the end 2020.
The drop in sales reported by the Commerce Department on Friday, however, is not expected to bring the economy back into recession, with other data showing the acceleration of production in factories last month. There is also cautious optimism that nearly $ 900 billion in additional pandemic relief, provided by the government in late December, will offer support.
The declining economic moment, which appears to have spread to the new year, could persuade the US Congress to agree with President-elect Joe Biden’s ambitious $ 1.9 trillion fiscal stimulus plan, which includes strengthening the response to viruses and direct relief to families and small businesses.
“This should make Congress more willing to negotiate with Biden’s wish list,” said Steven Blitz, chief economist at TS Lombard in New York. “The critical point for Biden’s story is that the virus itself is creating the slowdown, not any fundamental problems with the economy, and that is what needs to be done to resolve it.”
Retail sales fell 0.7% last month. November data was revised downwards to show sales falling 1.4%, instead of 1.1%, as previously published. Sales increased 2.9% over the previous year.
The monthly drop in sales was led by a 4.5% drop in restaurants and bars after many officials banned indoor meals during the holiday season. Online sales fell 5.8%. Revenue in electronics and home appliance stores fell 4.9%.
Consumers also cut spending on sporting goods, hobby, musical instruments and bookstores, as well as liquor stores. This offset a 1.9% recovery in sales at dealerships and a 2.4% increase in revenue at clothing stores. There was also a gain in sales in construction material stores and health and personal hygiene points.
Excluding automobiles, gasoline, building materials and food services, retail sales fell 1.9% last month, after a revised downward drop of 1.1% in November. These so-called basic retail sales correspond more closely to the consumer spending component of gross domestic product. They were forecast to have decreased by 0.5% in November.
“There were many culprits ruining the holiday spirit, including a frightening health situation, rising layoffs and an imminent drop in unemployment benefits,” said Lydia Boussour, senior US economist at Oxford Economics in New York. “Biden’s ambitious fiscal agenda could increase household spending during the delicate phase of launching the vaccine.”
Optimism about vaccine distribution limited a decline in consumer sentiment in early January, after supporters of President Donald Trump invaded the U.S. Capitol in an attempt to prevent lawmakers from certifying Biden’s victory in the November 3 election . In a second report on Friday, the University of Michigan said its consumer confidence index dropped to 79.2, from a final reading of 80.7 in December.
US stocks were trading low. The dollar won against a basket of currencies. US Treasury prices have gone up.
LOSSES OF JOBS
The sharp drops in major retail sales led economists to cut their consumer spending and GDP growth estimates for the fourth quarter. The government reported last week that the economy cut jobs in December for the first time in eight months. Further job losses are likely in January, with new unemployment insurance claims increasing in the first week of the month.
Rampant coronavirus infections and government delays to approve more money to help businesses and the unemployed are behind the loss of economic momentum. The growth estimates for the fourth quarter are around an annualized rate of 5%, largely reflecting an increase in inventory, which is boosting production.
The economy grew at a rate of 33.4% in the third quarter, after contracting at a rate of 31.4% in the April-June quarter, the deepest since the government began keeping records in 1947.
In a third report released on Friday, the Federal Reserve reported that industrial production grew 0.9% last month, after advancing 0.8% in November. This was the eighth consecutive monthly gain in factory production. Manufacturing is being supported by a shift in demand for service goods.
Factory production increased 11.2% in the fourth quarter.
“Manufacturing is clearly resisting this wave of confirmed COVID-19 cases better than it did earlier this year,” said Ryan Sweet, senior economist at Moody’s Analytics in West Chester, Pennsylvania. “Manufacturers are busy, as there is a need to replenish stocks and the demand for consumer goods remains strong, for now.”
A fourth Commerce Department report showed that companies’ inventories increased 0.5% in November.
Although economic growth is slowing, inflation is stirring, with a fifth Labor Department report showing that the producer price index for final demand increased 0.3% in December, after rising 0.1% in November.
“Additional government spending, as well as a more complete reopening of the economy that will bring demand back, are factors that will boost inflation in the coming months,” said Rubeela Farooqi, chief economist at High Frequency Economics in White Plains, New York .
Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Paul Simao