Ahead of Wednesday’s retail sales report, and in light of the recent sharp slowdown in the labor market and lack of progress on the stimulus front, most pundits expect a disappointing retail sales performance for the month of November, when retail sales are expected to drop by -0.3%, their first contraction since the April covid chaos when they plunged -15%. But is consensus about to be disappointed, especially when the NY Fed itself report that despite stagnant income and earnings expectations, US households (especially those making under $50,000) expect to go on a furious spending spree over the next 12 months?
For the answer we looked at the latest aggregated credit and debit card data reported by BofA, one of the largest card issuers in the US, which contrary to gloomy expectations, found that consumer demand normalized with total card spending increasing by 5.4% yoy for the 7-days ending December 5th after a large yoy swing the prior two weeks. Importantly, BofA’s measure of holiday sales, defined as core control retail sales ex-groceries, has moved back in line with last year’s trend and on a cumulative basis is up a whopping 19% yoy, reflecting very strong demand for goods items during the holiday season.
So is the myth of the weak US consumer just that? Well, as BofA explains, looking at its card data, retail sales ex-autos were unchanged in November on a MOM seasonally adjusted basis as spending at non-store retailers (online) slowed on a sequential basis due to difficult comparison to October when Prime Day and other competing promotions boosted consumer activity. And although the % mom may indeed be on the cusp of a contraction, BofA’s Michelle Meyer notes that it doesn’t reverse the exceptional growth previously and leaves the November growth rate at a stellar 9.8% Y/Y, hardly the stuff of imminent recessions.
The big picture shows that while typical “social” activities like transit, restaurants, travel, lodging and entertainment remain depressed, most other categories, and especially spending on electronic products, home improvement, furniture and online sales in general, are soaring:
Some more charts digging into the November card data:
It’s not just BofA’s card data that shows continued surprising consumer strength. For the week ending December 4, the NY Fed weekly economic index declined by 0.5ppt to -2.1% yoy, which is a solid print, and follows last week’s new post-crisis high of -1.6% yoy, with the 4- week average falling to -2.41% from -3.42% yoy in the prior four weeks. Based on this aggregate measure the economy continues to recover:
But while November was a generally good month for spending, in December spending may finally take a major hit, with other indicators suggests there are more soft spots emerging, particularly consumer activity and small business employment. Indeed, as the following high frequency indicators of consumer activity suggest, a double dip may be coming:
- For the week ending November 28, the week of Thanksgiving, the Dallas Fed’s Mobility Engagement index declined sharply to -50.6, from -39.6 in the prior week. This was the lowest reading since the week ending May 30 and might be due to people spending more time at home because of the Thanksgiving holidays. At a regional level, mobility declined over the week in all four census regions.
- Seated diners on the OpenTable network dropped by 6.9 ppt over the week to -62.6% yoy for the week ending December 6. The decline was broad-based across census regions as colder weather and tighter restrictions on indoor dining continue to translate into less dining out.
- Google mobility measures suggest that consumers continue to pull back on activity outside the home, continuing the trend we had seen prior to the Thanksgiving week distortions. For the 7-day period ending December 4, visits to retail and recreation locations, workplaces and transit stations all declined compared to two weeks ago.
- Demand for motor gasoline over the Thanksgiving week was little changed from the prior week while jet fuel demand remains down significant from a year ago.
- Movie box office sales did not see the same spike over the Thanksgiving week that they did last year as consumers’ risk aversion and government restrictions on theaters continues to plague the industry.
- Air travel has unsurprisingly declined sharply following the temporary Thanksgiving boost. The 7-day average through December 7 fell by 22% over the week to 725k, down 66% yoy.
Meanwhile, similar to the rolling indicators of consumer activity, labor market indicators are pointing to slowdown in the jobs recovery with what may soon be a contraction in jobs:
- After two consecutive weekly increases, Initial jobless claims fell sharply to 712k for the week ending November 28 from 787k previously. Though the decline may be due in part to fewer days of processing owing to the Thanksgiving holiday, and roughly 50% of the drop is from California, which has had notoriously bad data. Continuing claims, meanwhile, declined by 569k over the week to ,520k for the week ending November 21. We suspect much of this decline is due to recipients exhausting their 26 weeks of standard state benefits.
- Small business employment continues to show signs of contracting. Data from Homebase on employment and small businesses open resumed its pre-Thanksgiving declining trend. These data continue to suggest that tighter restrictions on activity and voluntary social distancing are translating into small business job cuts.
In summary, while this week’s retail sales will likely be a beat to expectations, especially on a Y/Y basis, don’t expect that to continue with a sharp hit to the economy likely as soon as the December print in one month, when the full extent of the second round of economic shutdowns will hammer the US economy.
