A Happy Holiday For Retailers?

Scott Anderson
Chief Economist

A resurgence in coronavirus cases across nearly all states and the weaker-than-expected October retail sales report released earlier this week puts the strength of the upcoming holiday shopping season in doubt.

We thought as folks gear up for their first, and hopefully last, coronavirus Thanksgiving, now would be a good time to share our holiday retail sales outlook for 2020.

The number of new COVID-19 cases began to rise sharply in mid-October and has become truly exponential over the past week. A new record-high number of cases on a 7-day moving average basis has been reached 26 consecutive days since October 24. This has resulted in many states backtracking on their in-person restaurant and bar reopenings, instituting new curfews between 10PM and 5AM, and placing stricter capacity constraints on businesses that have been allowed to stay open. The list of states and metro areas that are going down this road continues to increase. At least 18 states are undertaking one or more of these reopening roll-back strategies by our count, including California New Mexico, Oregon, Michigan, Washington, Wisconsin, New York, and Illinois just to name a few. Consumer driven small businesses that have been holding on by their fingernails over the past eight months are about to get challenged again with worsening financials and less government support.

U.S. retail sales already increased at its slowest pace since April last month. The labor market recovery is fading, adding to the coronavirus headwinds for many consumer service businesses. Nonfarm payroll gains moderated to 638,000 in October, the smallest monthly gain since job growth returned in May.

We forecast about 100,000 fewer net jobs will be created in November.

Looks like a Modest Holiday Sales Season Ahead

We expect a pretty modest holiday sales season this year. It will likely be neither a boom nor a bust for retail sales. We are forecasting retail sales growth for November and December of 2.9% from a year ago, down from a 4.4% increase over the same period in 2019. Moreover a lackluster retail sales gain as low as 1.0% can’t be completely ruled out, depending on how bad the coronavirus restrictions get by the end of the year.

Moderating income growth will weigh on consumer demand even as the coronavirus shutdowns keep tens of millions of more people at home. Less holiday travel and mall shopping, fewer holiday office parties, and declining consumer confidence could rob many retailers and restaurants of much needed profits this holiday season. Retailers are trying to salvage what they can with early Black Friday sales and numerous on-line deals to get people spending sooner and longer this year than we have seen in the past. So far in November, retail sales appear to be off to a respectable start, but an early start to the holiday shopping season could also mean an early end to the shopping season in December.

To find out more, check out this week’s U.S. Outlook Report.

==

Read More ›

Treasury Market Volatility Returns

Scott Anderson
Chief Economist

The 10-year Treasury note yield – which is a benchmark for long-term interest rates, including the popular 30-year fixed rate mortgage – was extremely volatile leading up to and following the elections on November 3rd. Now that most of the votes have been tallied, we thought now was an good time to look at what drove the intense volatility of longer-term Treasury rates and what it might tell us, or not tell us, about future interest rates moves.

Read More ›

Another Better Than Expected Jobs Report For October

Scott Anderson
Chief Economist

The U.S. labor market recovery continued in October at a fairly rapid clip, though the pace of net job creation slowed for the fourth consecutive month to a gain of 638k jobs down from a 672k gain in September.

Read More ›

Consumers Keep Spending Going Into The Holidays

Scott Anderson
Chief Economist

The September consumer spending and income report exceeded economists’ forecasts again.

In real terms, consumer spending increased at a robust 15.9% annualized pace in September, nearly ensuring consumers will continue to increase their spending at a healthy pace over the holidays too. Durable goods spending is up 14.3% from a year ago even as personal services spending has declined 6.5% from a year ago.

Read More ›

Deteriorating Fundamentals vs. Rising Expectations

Scott Anderson
Chief Economist

Over the near-term, U.S. economic growth fundamentals look set to deteriorate. Yet U.S. stock prices remain close to record highs and long-term Treasury yields have moved up 10 to 15 basis points in the last week alone on prospects for sizable fiscal stimulus and a new Democratic administration. The markets are clearly trying to look past near-term signs of trouble, while focusing on a brighter 2021. 

Read More ›