Retail sales' miss 'concerning' as COVID-19 cases rise

While the U.S. retail sales number for October rose, analysts are concerned consumers will not be able to boost the economy during another wave of coronavirus infections, especially without help from the government.

Retail sales climbed 0.3% in October, after a downwardly revised 1.6% gain in September, first reported as a 1.9% increase, the Commerce Department said Tuesday.

Excluding autos, sales rose 0.2% in the most recent month, after a 1.2% climb in the previous month, first reported as a 1.5% jump.

Economists polled by IFR Markets predicted sales would increase 0.5%, and gain 0.6% excluding autos.

Sales are up 5.7% from a year ago, and 4.4% when excluding autos.

“Retail sales in 2020 demonstrates the willingness of the U.S. consumer to spend in almost any environment,” according to Jason Celente, senior portfolio manager at Insight Investment. “Predictably, consumption shifted from in-person retail and food services experiences to online and home-related expenditures. Gasoline station sales have been down while grocery and liquor store sales have been up. These trends reversed to some degree during the summer months as mobility restrictions were lifted.”

While retail sales “remains an aggregate demand indicator,” he warned that fiscal stimulus has boosted aggregate demand during the pandemic, where millions of people have lost their jobs.

“So while the economy is learning to operate within a temporary construct, the question coming into today's retail sales economic release is, ‘Can recent gains in employment contribute enough to aggregate demand in order to offset the expiring unemployment benefits from the government?’ The answer so far appears to be ‘no it can't’ based on today's disappointing 0.3% month over month growth in retail sales, weighed down by declines in clothing,” Celente said.

“Noncyclical sectors,' he added, "performed worse than expected and are perhaps indicating that another round of fiscal stimulus is likely needed to ensure sustainable economic activity through the COVID-winter.”

While non-store retailers grew 3.1% in the month, Celente attributed that to Amazon Prime Day being held in October rather than in July this year.

“It is a reminder that COVID has accelerated several secular shifts, like the growth of e-commerce, to the point where individual corporate decisions can impact macroeconomic data,” he said.

David Page, head of macro research at AXA Investment Managers, expressed concern that slowing consumption could mean “momentum is ebbing ... as a revival in the virus appears to be weighing on activity.”

If cities or states add limits, it “could continue to dampen activity — some measures of consumer confidence have already begun a retreat — while household incomes are increasingly stretched with the failure to renew fiscal support," he added. "This is likely to increasingly constrain spending over the coming months.”

Import/export prices
Import prices fell 0.1% in October, following a 0.2% gain in September, the Labor Department reported Tuesday.

Export prices gained 0.2% in October on the heels of a 0.6% climb the previous month.

Economists expected imports to edge 0.2% higher and anticipated an increase of 0.3% for exports.

Industrial production
Industrial production increased 1.1% in October, after a 0.4% drop in September, according to the Federal Reserve.

Economists expected an increase of 1.0%.

Despite declining in only one month since May, it is still 5.6% lower than pre-pandemic levels, according to the Fed, and 7.7% below year-ago levels.

Capacity utilization gained to 72.8% in the latest month from 72.0% in September.

Economists predicted a 72.2% level.

“Strong manufacturing and industrial production growth in October showed an ongoing recovery in the goods side of the economy, underpinned by some rise in global trade,” Page said.

Business inventories
Business inventories gained 0.7% in September, after a revised 0.3% increase in August, Commerce said Tuesday.

Economists projected inventories to grow 0.5% in the month.

“Inventory also rebounded strongly, confirming some of the rebound suggested in Q3 GDP data,” according to AXA's Page.

Builder confidence climbed in November, as the National Association of Home Builders' housing market index rose to 90 from 85, an all-time high, NAHB said Tuesday.

Economists expected an 85 level.

“Another record high for the HMI reflects that housing is a bright spot for the economy,” according to NAHB Chief Economist Robert Dietz. “However, affordability remains an ongoing concern, as construction costs continue to rise and interest rates are expected to move higher as more positive news emerges on the coronavirus vaccine front.”

Business leaders survey
New York service-sector activity “declined at a faster pace” in November than the past few months, and has dropped for nine months in a row, according to the Federal Reserve Bank of New York's Business Leaders Survey, released Tuesday.

The business activity index fell to negative 15.8 in November from negative 4.9 in October, the business climate index narrowed to negative 63.1 from negative 65.9. The number of employees index increased to negative 3.6 from negative 6.7, the wages index rose to 17.3 from 7.6, the prices paid index gained to 32.0 from 30.4, the prices received index dropped to negative 0.5 from positive 1.4, and the capital spending index narrowed to negative 18.6 from negative 20.7.

The future business activity index reversed to negative 0.4 in November from positive 1.3 in October, the future business climate index narrowed negative 13.0 from negative 16.0. The number of employees index decreased to 1.4 from 7.8, the wages index inched up to 24.2 from 24.0, the prices paid index slipped to 32.1 from 32.6, the prices received index rose to 14.0 from 10.7, and the capital spending index dropped to negative 6.5 from negative 1.8.

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