WASHINGTON (Reuters) – US retail sales fell for the third month in a row in December, renewed measures to slow the spread of COVID-19 triggered job losses, further evidence that the injured economy lost considerable speed at the end of the year 2020.
However, the decline in sales reported by the Commerce Department is unlikely to push the economy back into recession, with other data showing factory production accelerating last month. There is also cautious optimism that nearly $ 900 billion in additional pandemic aid provided by the government at the end of December will provide a backstop.
The declining economic momentum, which appears to have spilled over into the new year, could persuade the US Congress to accept President Joe Biden’s ambitious $ 1.9 trillion fiscal stimulus plan, which includes supporting the virus response and direct relief. of households and small businesses.
“This should make Congress more willing to deal with Biden’s wish list,” said Steven Blitz, chief American economist at TS Lombard in New York. “The critical story of Biden’s story is that the virus itself creates the recession, not any fundamental problem with the economy, and this needs to be done to address it.”
Retail sales fell 0.7% last month. Data for November have been revised downwards to show that sales fell by 1.4% instead of 1.1%, as previously reported. Sales increased by 2.9% year-on-year.
The monthly drop in sales was caused by a 4.5% dip in restaurants and bars, after many authorities banned indoor dining during the holiday season. Online sales fell 5.8%. Revenues at electronics and home appliances stores decreased by 4.9%.
Consumers also reduce spending on sporting goods, hobbies, musical instruments and bookstores, as well as liquor stores. This offset a 1.9% return to sales at car dealerships and a 2.4% increase in revenue at clothing stores. There were also gains in sales at building materials stores, as well as at health and personal care points.
With the exception of cars, gasoline, construction materials and food services, retail sales fell 1.9% last month, after a revised downward decline of 1.1% in November. These so-called basic retail sales correspond most closely to the consumption component of gross domestic product. Previously, they were estimated to have fallen by 0.5% in November.
“There have been a lot of culprits who have ruined the holiday spirit, including a frightening health situation, rising layoffs and an imminent decline in jobless benefits,” said Lydia Boussour, an American economist at Oxford Economics in New York. “Biden’s ambitious fiscal agenda could reduce household spending during the delicate phase of vaccine launch.”
Optimism over the distribution of vaccines limited consumer sentiment in early January, after supporters of President Donald Trump stormed the US Chapter in an attempt to stop lawmakers from certifying Biden’s victory in the November 3 election. In a second report Friday, the University of Michigan said its consumer sentiment index fell to 79.2 from its last reading of 80.7 in December.
Shares in the US were traded below. The dollar won against a basket of currencies. US Treasury prices have risen.
LOSS OF JOBS
The sharp decline in core retail sales has led economists to cut their consumer spending and GDP growth estimates for the fourth quarter. The government reported last week that the economy lost jobs in December for the first time in eight months. Other job losses are likely in January, as new claims for unemployment rose in the first week of the month.
Coronavirus ramp infections and government delays in approving more money to help companies and the unemployed are behind the loss of economic momentum. Growth estimates for the fourth quarter are around an annualized rate of 5%, largely reflecting an increase in stocks, which stimulates 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 on Friday, the Federal Reserve said production rose 0.9 percent last month after advancing 0.8 percent in November. This was the eighth consecutive monthly gain in factory production. Production is supported by a shift in demand for goods from services.
Factory production increased by 11.2% in the fourth quarter.
“Manufacturing is clearly more resistant to this wave of confirmed cases of COVID-19 than they did earlier this year,” said Ryan Sweet, senior economist at Moody’s Analytics in West Chester, Pennsylvania. “Producers are busy because stocks need to be replenished, and demand for consumer goods remains strong for the time being.”
A fourth report from the Commerce Department showed that business stocks rose 0.5% in November.
Although economic growth is slowing, inflation is turbulent, with a fifth Labor Department report showing the output price index for final demand rising by 0.3% in December, after rising by 0.1% in November.
“The additional government spending, as well as a more complete reopening of the economy that will bring demand back, are all 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