There was a large 1.1% drop in retail sales in November, much worse than the consensus expectation for a decline of 0.3%. The details of the report were also bad; sales excluding autos fell 0.9%, and excluding autos and gasoline fell 0.8%. Control sales-which exclude food service, autos, gasoline, and building materials, and which go into nominal consumer spending in GDP-fell 0.5% in November. Total sales in October were revised lower, to no change, from the initially reported 0.3% increase.
Some of the November decline was no doubt related to record-high coronavirus caseloads and additional government restrictions on economic activity. For example, restaurant sales fell 4.0% over the month as consumer stayed home and some restaurants were closed or operated at reduced capacity. But some of the weakness also appears to be tied to general concern about the economy. For example, non-store sales (primarily online) increased just 0.2% in November, although Amazon Prime Day in October may have pulled some holiday sales earlier into the year. Sales were weak across most segments in November, with big declines for furniture and home furnishings (down 1.1%), electronics and appliances (down 3.5%), clothing and accessories (down 6.8%), specialty stores (down 0.6%), and general merchandise stores (down 1.0%). Sales of building materials were a bright spot, up 1.1%.
Although sales were flat in October and down in November, they still remained up sharply on a year-ago basis. Overall retail sales were up 4.1% year-over-year in November, including a gain of 3.6% excluding autos and 5.9% excluding autos and gasoline. Sales plunged in March and April with the pandemic, but surged over the summer thanks to stimulus assistance for households, very strong job gains, and low interest rates. Some of the weakness in late 2020 is due to strong sales earlier in the year, reducing the need for purchases at the end of the year.
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. As the pandemic continues to intensify consumers have become more cautious and states are re=imposing restrictions on economic activity, albeit in a more targeted way than earlier in the year. The economy is hitting a very rough patch, and the expected loss of unemployment insurance benefits for 12 million recipients at the end of the year would be another blow to consumer spending. 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.
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