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COVID Casts Shadow On Households

RFP
Retail sales dropped 1.1% in November, the second monthly decline since April. The first occurred after the data for October was revised down. A 1.7% drop in vehicle sales accounted for only a portion of that weakness. Losses excluding the vehicle sales were down 0.9% for the month. Core retail sales, which feed directly into the GDP calculation of consumption, were down 0.5% in November. Data for October were revised from a slight positive to a slight negative.

Losses were broad-based. Spending online underwhelmed, despite reports of a record-breaking surge on Black Friday, and were not enough to offset sharp declines in spending at traditional department stores, clothing, furniture, electronics and appliance retailers. Holiday hires declined in November as stores braced for the worst. Spending at restaurants and bars cratered, which triggered another round of layoffs and some permanent closings.

The only bright spots were building material and garden stores and grocery stores as fewer people went out. The housing market is one of the few sectors to fully recover from the doldrums last spring. High-wage home buyers have taken advantage of ultra-low mortgage rates to move to the suburbs, while people working from home have tapped their home equity lines of credit to do repairs and remodeling.

Data by Opportunity Insights revealed that the worst of the losses in spending occurred during the week of Thanksgiving. A surge in COVID cases overwhelmed hospitals and forced some states to reinstate containment measures. The slowdown in spending by high-wage households was pronounced, which has ripple effects throughout the economy. A pullback in spending on services exacerbated the weakness we saw before states mandated lockdowns and other containment measures in March.

Middle- and low-wage earners actually spent less, which underscores the reality that a rising tide does not lift all boats. Spending by the wealthy is not enough to keep the economy going amidst a pandemic. Brace yourselves for a long hard winter.

Bottom Line
Spending will likely weaken further before rebounding next spring and summer. In the interim, more than 13 million workers could lose what little income they had from unemployment insurance. Congress is still negotiating a slimmed-down aid package. Hopes are that it will pass before the winter break. That will not be soon enough to provide aid before the start of the new year, when much of what little aid is left lapses.

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