US: Retail feels the squeeze

US retail sales fell 1.1% month-on-month in December versus the -0.3% consensus forecast with weakness, unfortunately, seen throughout the report. In fact, it is easier to give you the ones that rose – just 3 components – building materials +1.1%, food & beverage +1.6% and non-store +0.2%. It is a very disappointing outcome and as we head to a December and January period that is likely to struggle even more as Covid containment measures kick in, this puts more pressure on Washington to agree on a fiscal support package.

The big falls were in electronics (-3.5%), clothing (-6.8%), department stores (-7.7%) and eating/drinking out (-4%). Moreover, there were downward revisions to October’s data with the headline retail sales figure moving from a 0.3% MoM growth rate to a 0.1% contraction.

Significantly, the “control” group, which excludes volatile food, gasoline and building materials and better maps onto consumer spending within the GDP report fell 0.1% in October and 0.5% in November. We could certainly see a decline in December as well, which suggests that the current 4Q20 GDP consensus forecast of 4.5% annualized growth is looking a little optimistic. We wouldn’t be surprised to see something closer to 2% with a potential negative reading for 1Q21 despite the vaccination program that is now underway.

With an increasing number of city mayors and state governors warning of more movement restrictions to combat the rise in Covid-19 cases, the economy is facing a period of growing uncertainty. With more restaurants being forced to close and the threat of closure of non-essential retail in some areas the need for more support for the economy is growing. Hopefully we will get a fiscal package agreed to mitigate some of these headwinds, but it won’t be able to fully offset weaker consumer spending or the threat of rising joblessness.