Coal in Many Christmas Stockings

Retail sales fell 0.7% in December, worse than expected, while November’s drop was revised down even further to -1.4%, marking the third straight month of losses. Total sales in 2020 were up only 0.6% from 2019, the slowest pace in retail activity since the last recession in 2009. Auto sales continued to show strength, while spending at gasoline stations picked up as more people traveled for the holidays by car. We ended the year with a goods-driven economy as the virus continued to ravage many parts of the country and pummel the services industry.

Retail sales did better after a dismal Black Friday in November but foot traffic at brick and mortar stores still fell 33% from a year ago during the final six weeks of the year. Spending at clothing and accessories stores actually rose 2.4% because shoppers rushed to make in-store purchases when significant delays to online deliveries occurred. I am still waiting for a few of my packages to arrive.

Department stores continued to suffer; a 3.8% drop in December brought spending 21% lower from the time the pandemic began. Department store bankruptcies and closures are shrinking sales in malls but top-tier malls may be spared; data from one firm suggested people spent more, with money saved from not taking vacations. Other malls did not see a boost, pointing to a K-shaped recovery in retail as well.

Online spending dropped 5.8%, the largest decline since December of 2018 when baby boomers pulled back on all spending as the stock market reacted negatively to trade war news. Spending online is still up from pre-pandemic levels with many households adapting to the click-and-ship lifestyle. However, significant delays for retailers and carriers pushed shoppers back to stores to get their gifts faster. With the holiday season now over, returns will drive the shipping industry, leading some retailers to tell shoppers to just keep the items they are being refunded.

Despite the boomlet in the housing market, purchases of furniture and appliances did not match. Furniture and home store spending dipped 0.6% last month. However, strength in spending on building materials and garden equipment held up with many still taking on home renovations while cooped up at home; spending has risen 15% since the pandemic began. Spending at sporting goods stores and electronics and appliance stores all declined.

With the third wave of the virus spreading into the holidays, consumers remained at home and cut back on in-person celebrations. Spending at restaurants and bars fell 5% in December, the largest drop since April; almost a half-million more employees in the industry lost jobs. Many states reenacted targeted lockdown measures when hospitals began to be overwhelmed; indoor dining is one of the first things on the list for states to shut down. Many small businesses are in the food and hospitality industry and, unfortunately for many, another round of fiscal support from Washington came too late. More than 110,000 restaurants have closed permanently since the pandemic began, according to an industry representative.

Grocery store spending slipped 1.7% last month since holiday celebrations were muted (smaller turkeys were hard to come by) and more households experienced food insecurity. Stimulus checks of $600 from the most recent round of COVID relief passed right after Christmas so it didn’t start hitting consumers’ wallets until the new year, far too late for many. Foodbank demand surged across the country in 2020.

Bottom Line
Consumers lost ground in December. Core retail sales, which feed into GDP, fell 1.9%, pointing to a very dismal end to 2020. As we enter 2021, we are seeing more targeted lockdowns as new, more contagious virus variants spread. The road to herd immunity is filled with potholes as delays in distribution and administration of vaccines occur.

Credit card data point to some weakness in consumer spending at the start of the year when households waited for $600 stimulus checks; at the same time, layoffs are surging again. Help cannot come soon enough. If the new administration’s $1.9 trillion stimulus plan is approved by the slim Democratic majority in the Senate, it will go a long way to providing lifelines to consumers who desperately needed help to navigate what my colleague Diane Swonk calls “COVID-tainted waters.”

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