U.S. Retail Sales Seen Stagnating in December Due to Virus Surge

(Bloomberg) -- U.S. retail sales probably stagnated in December after declining in recent months as a surge in coronavirus infections led to new business restrictions and limited economic activity during the all-important holiday-shopping season.

Economists project Friday’s government report will show that overall receipts at the nation’s retailers were little changed from November, while sales excluding auto dealers fell for a third straight month, according to Bloomberg survey medians.

Despite an uptick in e-commerce during the holiday season, retail sales were likely held back by slowdowns in the services sector as new pandemic-related shutdowns limited restaurant dining and travel. While economists project that vaccinations will broaden spending in the second quarter, the next handful of months could bring more weakness until many more Americans are vaccinated.

“It’s probably about as bad as it’s going to get right about now,” said Stephen Stanley chief economist at Amherst Pierpont Securities LLC. “And then things start to gradually improve as the vaccines become more broadly available and economy begins to reopen in a much more meaningful way.”

Retail sales may get a boost early this year from the coronavirus relief package signed by President Donald Trump on Dec. 27, which included $600 stimulus checks for individuals and extended unemployment benefits through March. President-elect Joe Biden is expected on Thursday to release details of an additional relief package, which could increase government payments to $2,000.

“We expected people to be a bit more cautious in the first half of the year, but when you top them up with $2,000 check instead of $600, that makes a big difference,” said Brett Ryan, senior U.S. economist at Deutsche Bank Securities Inc. “That probably keeps goods spending over the next couple of quarters elevated even though they don’t spend on services.”

The headline retail sales figure will likely be bolstered by a 4.6% uptick in car sales between November and December, as well as a sharp increase in gasoline prices. The retail data aren’t adjusted for inflation. The most acute weakness was probably in brick-and-mortar categories, which were most susceptible to sharply declining foot traffic, Bloomberg chief U.S. economist Carl Riccadonna said in a note.

What Bloomberg Economics Says...

“December retail sales take on heightened significance, as the report will signal whether consumers simply delayed holiday shopping more than usual -- thereby compressing activity largely into December -- or if demand is truly collapsing as the coronavirus crisis intensifies.”

--Carl Riccadonna, economist

For the full note, click here

Despite an expected lull in the next few months -- due to factors including political infighting, declining consumer confidence and rapidly rising virus cases -- retail sales should accelerate after March, said Troy Ludtka, U.S. economist at Natixis North America LLC.

“The mere fact that establishments have to close, consistent with state and local governments restrictions, necessarily will create a sort of pent-up demand which should be released in the second half of the year,” Ludtka said.

©2021 Bloomberg L.P.