By Harriet Torry
The holiday shopping season got off to a muted start as U.S. consumers reined in November spending amid a surge in coronavirus infections and new business restrictions in some states.
U.S. retail sales, a measure of purchases at stores, restaurants and online, dropped a seasonally adjusted 1.1% in November from the prior month, the Commerce Department said Wednesday. October sales were revised to a decline of 0.1% from an earlier estimate of a 0.3% increase. Sales were up by 4.1% in November when compared with the same month a year ago.
Restaurants, department stores and vehicle dealerships all reported sharp sales declines in November, with clothing and furniture purchases falling. Purchases of groceries and building materials increased, along with online sales.
The November and October drops marked the end of several months of growth in retail spending after sharp declines earlier this year when the coronavirus pandemic triggered widespread business closures.
"Anywhere there's crowds people stayed away from," said Joshua Shapiro, chief U.S. economist at consulting firm Maria Fiorini Ramirez Inc. "It underscores the difficulty here till the vaccine is widely distributed," he said.
The retail sales report and other readings on the U.S. economy suggest the recovery is slowing after a burst of growth over the summer.
Hiring growth eased in November while worker filings for unemployment benefits recently increased. Surveys of factories and service-industry companies released on Wednesday separately showed U.S. output grew at a solid pace in early December, but at the weakest pace in about three months.
U.S. home-builder confidence fell in December from an all-time high, breaking a seven-month streak of gains, according to a measure from the National Association of Home Builders released Wednesday.
Lawmakers in Congress were close to a $900 billion deal on Wednesday to provide a fresh round of economic stimulus that was expected to include enhanced unemployment insurance and another round of direct payments to households, according to people familiar with the negotiations.
The Federal Reserve, meanwhile, on Wednesday updated its plans for purchases of government debt to support the economy and said it expected interest rates would remain near zero through at least 2023, as the labor market and economy rebound from the pandemic.
Fed Chairman Jerome Powell said he and private forecasters expect the surge in virus infections to slow the economy through the winter, with growth picking up as more people are vaccinated next year. "The economy should be performing strongly" by the second half of 2021, he said.
"We've got to be braced for a period of two, three, four months of extreme vulnerability for the economy," James Knightley, an economist at ING Financial Markets LLC, said. Mr. Knightley expects gross domestic product to contract about 1.2% in the first quarter of 2021 after increasing around 1.5% to 2% in the fourth quarter. Mr. Knightley said he "can't see containment measures wound down meaningfully until vaccination is at a critical mass."
U.S. shoppers spent less than last year over a five-day stretch including Black Friday and Cyber Monday as increased online shopping was offset by fewer people visiting physical stores during the pandemic. People spent an average of just under $312 on holiday-related purchases from Thanksgiving to Cyber Monday, down 14% from 2019 though on par with 2018, according to a survey by the National Retail Federation and Prosper Insights & Analytics.
Retailers also pushed an earlier start to the holiday season, both to limit crowds at stores and to ease pressure on supply chains by avoiding preholiday order bottlenecks.
Other data show that spending has continued to lag since the Thanksgiving holiday. JPMorgan Chase & Co.'s tracker of 30 million credit and debit cardholders recorded a 3.5% decline in spending from a year earlier in the week through Dec. 12. Credit- and debit-card data collected by research firm Affinity Solutions and research group Opportunity Insights showed that overall spending was down 1.7% in the week ended Dec. 6 compared with January levels.
Anthony Dukes, professor of marketing at the University of Southern California Marshall School of Business, expects retailers to suffer as the country faces the latest wave of coronavirus infections, and "more shakeouts of smaller businesses and dinosaur department stores will continue."
He said demand should pick up in the spring as vaccinations lead to an easing of social-distancing measures. "Once we can do what we can do, people will be glad to get out," Mr. Dukes said.
Retailers with significant online sales, particularly those with products catering to consumers working from home, have performed better than businesses that rely on in-person interaction.
Lululemon Athletica Inc. last week reported a jump in sales and profit in the most recent quarter, as pandemic-weary shoppers snapped up its athletic apparel and other comfortable clothing, though it offered a less rosy outlook as Covid-19 surged.
Carlo Castronovo, owner of Giusseppe's Pizza & Italian Cuisine in Old Bridge, N.J., said the pandemic means "business is lower than it's ever been but we're staying afloat," as curbside pickup and home delivery have been "a savior for sure."
"It's tough, mainly because everyone's nervous," said Mr. Castronovo. Normally at this time of year the restaurant would be catering holiday parties, "five trays of this and six trays of that -- that's definitely ended," he said.
Essential businesses have fared better. Costco Wholesale Corp. reported strong quarterly sales last week as homebound consumers spent more on food, home goods and fitness products during the pandemic.
More people eating breakfast at home during the pandemic has helped drive orders for Hidden Springs Maple in Putney, Vt. The family-owned maple-syrup processor has seen a 34% increase in sales across the board since March, with sales from its website up 74% and Amazon.com Inc. orders up over 130%. It closed its retail store due to the pandemic, and repurposed the space for shipping orders.
"It's been quite the crazy ride, who knows if it will continue next year, it depends how elastic people are with shopping online," said its manager, Andrew Cooper-Ellis. This year the company canceled its usual Black Friday promotional event just to try to keep up with demand, he said.
Write to Harriet Torry at firstname.lastname@example.org
(END) Dow Jones Newswires
December 16, 2020 17:11 ET (22:11 GMT)Copyright (c) 2020 Dow Jones & Company, Inc.