US: Retail Sales Terrible, but a New Year is Coming

As we expected, retail sales were terrible in November, falling -1.1% m/m, far worse than consensus forecasts of -0.4%.  It was the second monthly loss in a row as October’s sales were revised down from +0.3% to -0.1%.  And it was the worst November in the 12 years since the Great Recession. Notable declines included a -4.0% m/m drop in bars and restaurants, -6.8% in clothing and accessories, and -7.7% in Department Stores.

Since February, just before the lockdowns started, total retail sales have in fact recovered and are now up 3.6% since that time. However, there is a huge dispersion between sectors, clearly reflecting life in the time of COVID.  Sales of non-store retailers, which are mostly e-commerce are up a dramatic 26.9% (Hello Amazon? Send me toilet paper, hand sanitizer, The Sopranos box set and War and Peace). On the other hand, of course bars and restaurants are still down -18.6% since February while Department Stores are gasping for air, having sunk -18.4%. We have a long way to go until normal.

Regarding November’s decline, is it any wonder? Consumer confidence remains far below pre-COVID levels, income growth is drying up, and the moratorium on evictions, which could affect 30 to 40 million Americans is set to expire at the end of the year. Of course people were not spending.

And this morning’s data continues to go the wrong way. Initial weekly jobless claims for the regular state programs rose from 862,000 to 885,000, which is the highest in over three months. Continuing claims, that is the total number of people still claiming benefits, did fall but they are still twice as high as the long-term average. It’s no surprise since states are implementing more shutdowns.

Furthermore, the data on the pandemic unemployment benefit programs are also going the wrong way. Under the Pandemic Unemployment Assistance (PUA) program, continuing claims rose from 8.6 million to 9.2 million – the highest in six weeks. Similarly continuing claims in the Pandemic Emergency Unemployment Compensation (PEUC) program rose from 4.5 million to 4.8 million, which is the highest it has ever been since its implementation in April. Both the PUA and the PEUC are set to expire on December 26^th.

However, at the time of publication, hopes are high that Congress will get a $900B relief bill passed before leaving for the holiday break. They should - it would be unconscionable not to when there are almost 10 million people who lost their jobs in March and April and are still unemployed through no fault of their own.

Highlights of the proposed program include:

Extensions for the PUA and the PEUC

• $300/wk. extra unemployment benefits in the regular state programs (it was $600 in the CARES act) through March
• $600 direct payments ($1,200 in CARES)
• $325B in small business relief including $257B for the Paycheck Protection Program
• An extension of the moratorium on evictions through January 31^st, 2021
• Funding for the vaccines

It is expected that another similar relief package will be passed shortly after Biden is sworn in as President in January (yes it’s a lot more debt, but it’s a pretty bad situation).

In typical Congressional fashion they are trying to ram the current $900B relief bill through along with another $1.4T funding bill before the government runs out of money on December 18^th. I don’t know everything about how Congress works, but as an outsider, these operations seem sub-optimal to me. 

Bottom line: The labor market continues to deteriorate as COVID-19 plows ahead, causing states to shut down. But a relief package is likely to be passed very soon, followed by another one next year. We have a long, long way to go to get back to previous levels of employment and economic activity. Brick and mortar retail continue on its terrible, terrible spiral down. But really rather miraculously, we have three vaccines at work now, and they were developed in less than a year. Historically, according to Business Insider, “vaccines often take years, and sometimes even decades, to develop, test, and approve for public use” while an expert at NC State University said it “traditionally has taken 5-10 years to get a new vaccine.” The World Economic Forum reports that it takes “10 years.”* The COVID-19 vaccines were developed in around 10 months. That’s an incredible 6 -12 times as fast as the historical average. And that’s a miracle we can all be thankful for.