Consumer spending fell for the third month in a row in December, confirming what many economists had forecast as the disappointing Christmas season for many retailers and restaurants.
Retail sales fell 0.7 percent last month, the Commerce Department said on Friday as the economic recovery showed signs of stagnation and the number of viruses spiked across the country, causing shoppers to shut down stores amid a new wave of Avoid restrictions.
For the second straight month, the decline was worse than predicted by most economists, showing that the deterioration in the overall economy in the final quarter of 2020 was deeper than expected.
“In one line: grim,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics, of December retail sales in a research note on Friday.
“We believe the fear of the third wave of Covid and the restrictions imposed across much of the country to suppress it have caused most of the damage to retail sales in the past two months,” he added added.
The decline was widespread in many categories, including electronics, auto, and grocery and beverage stores, which saw high spending last spring and summer but fell towards the end of the year. Restaurant spending fell again in December as cases and closings rose.
The decline most likely also reflects how retailers’ strategies of offering vacation deals early in fall spread the holiday shopping season over months, and may have dampened sales closer to Christmas.
The Commerce Department also revised its November sales data, showing a 1.4 percent drop, larger than the 1.1 percent drop previously reported.
Weaker consumer spending, which accounts for 70 percent of the U.S. economy, adds to the urgency of the $ 1.9 trillion economic bailout proposed by the new administration in Biden this week, which will increase direct payments to individuals by $ 1,400 would increase.
“This is likely the low point for retail sales as the late December incentive and the upcoming incentive under the Biden administration will improve both bank accounts and consumer sentiment,” Robert Frick, corporate economist with Navy Federal Credit Union, said in a Explanation.
However, other economists said Americans would be more likely to save their stimulus money than spend it over the next few months, especially as stores remain closed.
The retailers trade group searched for the bright spots in the trade report, highlighting that vacation shopping was higher last year than it was in 2019, with sales up 8.3 percent.
“With the virus spreading, government restrictions on retailers, and heightened political and economic uncertainty, consumers turned to gifts that lifted the spirits of their families and friends and made them feel normal in the challenging year,” said Matthew Shay, president the National Retail Federation said in a statement.
However, there is evidence that more and more of these sales are going to huge retailers who have been able to use their scale and digital skills to gain larger market share during the pandemic.
One such retailer, Target, said Wednesday that its November and December sales were up 17.2 percent year over year, driven by both in-store and online shopping. Target’s digital revenue was the largest area of growth, more than doubling from the 2019 Christmas season. The vast majority of these deliveries came from Target stores.
Amazon has also said that its Christmas sales hit a record high in 2020 but has not yet provided detailed figures.
Overall, online shopping over the 2020 vacation increased 32 percent year over year to $ 188 billion. However, the weakness in retail sales in December shows that despite the surge in e-commerce, the majority of consumer spending – such as groceries, auto sales, and restaurants – is still in physical environments that remain constrained due to the pandemic.
That reality, Shepherdson said, means that despite the expected stimulus for consumers in the first few weeks of the Biden administration, spending could remain depressed for the next several months.
“We anticipate consumer spending will have problems until the falling Covid cases allow restrictions to be relaxed from March,” he said.
