Between the U.S. Bureau of Economic Analysis showing personal income declined month-to-month in October and November along with the U.S. Census Bureau estimating that retail spending fell in the same months, it appears that the economy is losing steam. Mastercard’s MA SpendingPulse survey is also estimating that holiday sales only increased 2% vs. the industry’s forecast of a 3.6% to 5.2% rise.
Even with the recently signed Covid-19 relief bill it may not be enough to keep the economy on track before enough of the vaccine is distributed and people are inoculated. It should also be kept in mind that a large percentage of people who received stimulus money earlier this year either saved it all (almost 40%) or spent it all on essentials (almost 30%). Those whose jobs were not impacted tended to save or invest it while those who lost their jobs or saw their income reduced desperately needed it to make ends meet.
While wages have risen, government payments have fallen
The U.S. Bureau of Economic Analysis estimates that after personal income fell 0.6% in October from September it dropped 1.1% from October to November. While income (which includes government payments) has risen 2.0% since February before the coronavirus led to the economy being shut down, wages are down 0.4% since then.
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Gregory Daco at Oxford Economics created this graph which shows a jump in Real Personal Income (the solid blue line) but that was due to a huge inflow of government stimulus payments. If those had not occurred the economy would have been in much worse shape since Real Personal Income Except for Transfers (the dotted blue line) is what consumers would have had to spend. The difference between the Real Personal Income and Real Consumer Spending shows a huge increase in Personal Savings.
To get a longer-term view this is a chart Daco created going back to 1960. You can see the abnormally large swings in income and spending in 2020 compared to previous downturns in the economy. The blue line representing spending has down-ticked the previous two months. It will be critical for it to rebound for the economy to get moving again.
Consumer spending is showing signs of weakness
November saw the first decline in overall consumer spending month-to-month after six months of growth. While Services has dropped from 69% to 66% of the economy, it having even a 0.2% decline month-to-month is impactful. And spending on Goods has also fallen for the past two months.
This chart by Daco helps to illustrate that Food Services and Transportation were the weakest sectors of the Services economy. Clothing and Footwear and Motor Vehicles and Parts were the weakest parts of the Goods economy.
Retail sales fell the last two months
The U.S. Census Bureau tracks retail sales. It estimates sales were essentially flat from September to October or down 0.1% but from October to November they fell 1.1%. They are up 4.1% from November 2019, but if the economy stays on the weak side this comparison number should drop.
Daco’s graph below shows that there were only three sub-sectors that showed an increase month-to-month and that core retail sales also fell in November.
Mastercard’s SpendingPulse analysis has holiday sales (November 1 to December 24) without autos and gas increasing 2.0% year over year and excluding only autos the increase was only 0.6%. These results would fall short of the National Retail Federation’s late November forecast.
The economic recovery may have stalled
This chart is from Oren Klachkin at Oxford Economics, and it tracks the economy in five geographic areas. While it shows the economy improved in the spring, it flattened over the summer and has downturned recently.
Consumer confidence has slipped
The most recent reading on consumer confidence showed declines, not a great signal going into the holiday spending season combined with increased coronavirus cases, hospitalizations and deaths. The Conference Board said, “the Consumer Confidence Index® declined in December, after decreasing in November. The Index now stands at 88.6 (1985=100), down from 92.9 in November. The Present Situation Index – based on consumers’ assessment of current business and labor market conditions – decreased sharply from 105.9 to 90.3. However, the Expectations Index – based on consumers’ short-term outlook for income, business, and labor market conditions – increased from 84.3 in November to 87.5 this month.”