WASHINGTON: U.S. retail sales fell for a third straight month in December amid job losses and renewed measures to slow the spread of COVID-19, further evidence that the economy lost speed at the end of 2020.
Still, the economy is unlikely to slip back into recession, with other data on Friday showing production at factories accelerating last month. There is also cautious optimism that nearly $900 billion in additional pandemic relief provided by the government at the end of December will offer a back stop.
President-elect Joe Biden on Thursday unveiled a $1.9 trillion fiscal stimulus plan that includes bolstering the response to the virus and direct relief to households and small businesses.
“There were plenty of culprits ruining the holiday spirit, including a frightening health situation, rising layoffs, and a looming lapse in jobless benefits,” said Lydia Boussour, a senior U.S. economist at Oxford Economics in New York. “Biden’s ambitious fiscal agenda could juice up household spending during the delicate vaccine rollout phase.”
Retail sales dropped 0.7% last month, the Commerce Department said. Data for November was revised down to show sales declining 1.4% instead of 1.1% as previously reported. Sales at restaurants and bars plunged 4.5%. Online sales tumbled 5.8%. Receipts at electronics and appliance stores dropped 4.9%.
Consumers also cut back spending at sporting goods, hobby, musical instrument and book stores as well as beverage stores. That offset a 1.9% rebound in sales at auto dealerships and a 2.4% increase in receipts at clothing stores. There were also gains in sales at building material stores as well as health and personal care outlets.
Excluding automobiles, gasoline, building materials and food services, retail sales tumbled 1.9% last month after a downwardly revised 1.1% decline in November. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product. They were previously estimated to have decreased 0.5% in November.
U.S. stocks were mixed. The dollar rose against a basket of currencies. U.S. Treasury prices were higher.
JOB LOSSES
The continued weakness in core retail sales prompted economists to cut their consumer spending and GDP growth estimates for the fourth quarter. The report followed in the wake of news last week that the economy shed jobs in December for the first time in eight months. Further job losses are likely in January as new applications for unemployment benefits surged in the first week of the month.
Rampant coronavirus infections and delays by the government to approve more money to help businesses and the unemployed are behind the loss of economic momentum. Growth estimates for the fourth quarter are around a 5% annualized rate, largely reflecting an inventory build, which is boosting manufacturing.
In a separate report on Friday, the Federal Reserve said manufacturing production rose 0.9% last month after advancing 0.8% in November. That was the eighth straight monthly gain in factory production. Manufacturing is being supported by a shift in demand towards goods from services.
Economists had forecast manufacturing output would rise 0.5% in December. Motor vehicles and parts output declined 1.6% in December. Excluding autos, manufacturing output increased 1.1%. Production at factories increased at a 11.2% annualized rate in the fourth quarter.
“Manufacturing is clearly weathering this wave of confirmed COVID-19 cases better than occurred earlier this year,” said Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Pennsylvania. “Manufacturers are busy as there is a need to rebuild inventories and demand for consumer goods remains strong, for now.”
The economy grew at a 33.4% rate in the third quarter after contracting at a 31.4% pace in the April-June quarter, the deepest since the government started keeping records in 1947.
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