Consumers Slowed in November


Retail sales rose 0.3% in November, which marked a sharp slowdown from the scorching 1.8% pace of October. Sales contracted after adjusting for the surge in the consumer price index (CPI) for the month but were still up at a blistering 18.2% from a year ago. The winter COVID wave, restrictions on travel and the abrupt end of stimulus had taken a toll on spending during the holiday season in 2020.

Vehicle sales, which were picking up with increased production following chip shortages, slowed a bit. Sales excluding vehicles rose 0.3% after surging 1.8% the month prior. Sales of autos increased while sales of light trucks abated as prices at the gas pump continued to surge. Production is ramping up but dealer lots are still fairly empty due to earlier chip shortages. The rise in new vehicle prices suggests that spending on new vehicles actually fell more than they appeared at first glance. The shift to less expensive autos versus light trucks likely blunted some of the impact of higher prices.

Spending pivoted from goods back into services as consumers took to traveling and seeing family during the Thanksgiving holiday. Spending at grocery stores and restaurants and bars were among the few categories to accelerate during the month. Those gains exceeded inflation. Spending at gasoline stations rose 1.3% but fell sharply after adjusting for the 6.1% increase in prices at the gas pump. Gains in energy prices likely took a toll on spending by low- and middle-income households during the month. Rising prices at the gas pump and higher heating and electricity bills act as a tax on consumers and are beginning to crimp spending. Even Christmas trees have skyrocketed in price.

Consumers pulled back on spending during Black Friday and Cyber Monday sales. Part of that reflects the move to buy ahead of fears of shortages and delivery delays in October. Traffic online and in stores weakened during the week of Thanksgiving. The deals were also scarce, which left more consumers on the sidelines.

Core retail sales, which are used to determine the gain in consumer spending for the overall GDP figures for the quarter, fell 0.1% in November. That contrasts with a 1.8% surge in October. This is in line with our more conservative estimate for overall GDP growth in the fourth quarter, which shows the economy rising closer to 7% than the 8% many of our peers had for the quarter. It is still good, just not as spectacular as some had hoped.

The biggest contractions in spending during the month were in spending at traditional department stores and electronics and appliance stores. Spending at online retailers flatlined but was still up more than 12% from a year ago when spending pivoted toward online retailers when restrictions went back into place.


Bottom Line


Consumers took a breather after a spending spree in October. We are still catching up on the slowdown in spending witnessed during the Delta wave over the summer. That said, the winter Delta wave is now upon us. That surge coupled with the unknown threat posed by Omicron has already overwhelmed hospitals in some areas and taken a toll on reservations at restaurants. The bulk of the weakness associated with the current wave of infections is expected to show up in the first quarter data.





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Copyright © 2021 Diane Swonk – All rights reserved.  The information provided herein is believed to be obtained from sources deemed to be accurate, timely and reliable. However, no assurance is given in that respect. The reader should not rely on this information in making economic, financial, investment or any other decisions. This communication does not constitute an offer or solicitation, or solicitation of any offer to buy or sell any security, investment or other product. Likewise, this communication serves to provide certain opinions on current market conditions, economic policy or trends and is not a recommendation to engage in, or refrain from engaging, in a particular course of action.


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