Recent numbers do not look good. Jobs growth in November slowed considerably from the strong summer figures. Initial claims for unemployment insurance remain disturbingly high. Retail sales, after stalling in October, fell 1.1% in November. That is almost 12.5% at an annualized rate. The picture could be brighter but expecting this to persist would be a mistake.
Two things explain this recent weakness. First, the summer economic surge was never sustainable. Monthly retail sales jumped 6.3% on average between May and September. This growth was entirely unprecedented and reflected a snapback from the intense lockdowns and quarantines of late March and April. The same phenomenon accounted for comparable surges in employment during those months as well as the record 33.1% annualized (annualized) jump in the third quarters real gross domestic product (GDP). This pace was simply unsustainable. Even had the economy’s re-opening continued apace into the present, the growth figures would have shown a slowdown. But there is a second factor. Despite the arrival of vaccines and all the longer-term optimism they inspire, a striking rise in infections has induced the re-imposition of anti-virus strictures in some locations as well as increasing levels of fear in the population, both of which have also imposed on present levels of economic activity.
The detail in the most recent set of retail sales figures makes evident the impact of these renewed strictures and fears. The many retail establishments that had been holding on barely in the hopes that the environment would improve have in the face of this latest setback given up and closed permanently. New York City’s iconic 21 Club recently announced that it would close its doors forever. Admittedly, this is only a single example in a special location, but it is nonetheless indicative. Also indicative, the November report showed that department stores, where human interaction is unavoidable, showed the biggest sales declines, 7.7% for the month or 62% at an annualized rate. Reflecting the renewed need to stay at home, sales of clothes and accessories fell 6.8% in November. Also indicative of this pressure was the 4.0% drop in sales at restaurants and bars. Meanwhile, non-store retailers showed a sales rise in November, admittedly a modest one but a sharp contrast to the rest of the sector. Products that sell for hobbies, musical instruments, and books, all stay-at-home stuff, fell a relatively modest 0.6%. In contrast to the fate of restaurants and bars, grocery sales rose a smart 2.0% (27% at an annual rate). It is not that Americans plan to eat a lot more. The groceries substitute for the dining out they would have preferred.
This depressing news, however, should have a short shelf life. To be sure, it will color the economic milieu in December and January but not much after. A quick lift should come from Washington, which seems set to pass economy-boosting fiscal relief, not as generous as last spring’s CARES Act, but significant nonetheless. And by March, enough vaccinations should reduce the fears that weigh on the present economy and induce the authorities to lift some of the lockdown and quarantine strictures currently in place. These improvements are unlikely to produce the kind of snapback that characterized last summer. After all, restraints even now are much less severe than last April. But the change after the period immediately ahead should allow the recovery to proceed through the rest of 2021. Beyond that, there are longer-term economic concerns, most particularly the legacy of debt left by the bankruptcies brought on by this strained period and likely to occur because of the real estate shifts imposed by the pandemic, but these more distant problems will form the subject of another post.