Indicators cool as COVID-19 cases climb

Economic data released Wednesday were soft, with retail sales off more than expected, builders’ confidence falling, and the New York services sector contracting as the coronavirus has caused further shutdowns and restrictions.

While a vaccine is beginning to be rolled out, surveys suggest many people don’t want to take the shot.

Retail sales declined more than expected in November with October numbers revised lower. Sales dropped 1.1% after a downwardly revised 0.1% dip in October, the Commerce Department reported Wednesday.

The October number was first reported as a 0.3% gain.

Excluding autos, sales fell 0.9% in November after a downwardly revised 0.1% slide in October, first reported as a 0.2% increase.

Economists polled by IFR Markets expected sales to decrease 0.3% but rise 0.1% excluding autos.

“Losses were broad-based,” according to Diane Swonk, Chief Economist at Grant Thornton. “Spending online underwhelmed, despite reports of a record-breaking surge on Black Friday, and were not enough to offset sharp declines in spending at traditional department stores, clothing, furniture, electronics and appliance retailers. Holiday hires declined in November as stores braced for the worst. Spending at restaurants and bars cratered, which triggered another round of layoffs and some permanent closings.”

She expects spending to decline “before rebounding next spring and summer.”

Separately, the services sector in New York “declined at its fastest pace since June,” according to the Federal Reserve Bank of New York’s Business Leaders Survey. The business activity index widened to negative 26.9 in December from negative 15.8 in November, while the business climate index narrowed to negative 60.3 from negative 63.1, suggesting most firms see the current business environment as worse than normal.

The forward-looking indicators indicated “firms expect little if any improvement in conditions over the next six months,” the Fed said, with the future business activity index reversing to positive 4.7 from negative 0.4 in November and the business climate index rebounding to zero from negative 13.

Respondents to the Business Leaders Survey, which the Fed calls “a close cousin of our Empire State Manufacturing Survey,” come from New York, northern New Jersey, and southwestern Connecticut.

Also, homebuilder confidence slipped from a record 90 reading in November, falling to 86 in December, it’s second highest reading on record, according to the NAHB/Wells Fargo Housing Market Index.

Economists expected a smaller decrease, to an 88 level.

The sector has performed well despite inventory shortages and increased construction costs. “As the economy improves with the deployment of a COVID-19 vaccine, interest rates will increase in 2021, further challenging housing affordability in the face of strong demand for single-family homes,” NAHB Chief Economist Robert Dietz said.

The current index fell to 92 from 96, while the expectations index slid to 85 from 89 and the traffic of prospective buyers index declined to 73 from 77.

Business inventories rose 0.7% in October after an upwardly revised 0.8% rise in September, first reported as a 0.7% increase, Commerce reported.

Economists expected a 0.6% climb.

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