U.S. retail sales declined for the third consecutive month in December

*U.S. retail sales declined by 0.7% m/m in December, the third consecutive monthly decline, but it remained above its pre-pandemic level (+2.6%). See Chart 1. Retail sales actually increased by 0.4% in 2020, defying the pandemic.

*The recent slowdown in economic and labor market activity is due to the intensification of the pandemic that has led some state and local governments to impose new restrictions and households to voluntarily change their behaviors. Note that the magnitude of the October-December declines in retail sales are not nearly as large as they were in March (-8.2% m/m) and April 2020 (-14.7% m/m).

*A sizable $4.9bn decline in non-store retail sales (includes online) drove the $3.7bn decline in total retail sales. Other categories of sales were mixed, with six of the 13 primary categories increasing (Table 1 and Chart 2). Control retail sales (excludes gasoline stations, food services and drinking places, building materials, and auto sales), which factor directly into GDP, tumbled by 1.9% m/m in December and was revised lower to a decline of 1.1% m/m in November (from the previous estimate of -0.5%), bringing its change in Q4 to -2.2% q/q annualized following its massive 44.4% q/q annualized increase in Q3 (Chart 3). Growth in control retails sales actually accelerated to 5.6% in 2020 from 4.1% in 2019.

Non-store retail sales (includes online) have declined in three of the last four months (Chart 4). This downtrend is concerning given that this sales category is the most resilient to pandemic restrictions and its recent poor performance coincides with the holiday shopping season. However, non-store sales are still elevated, 16.9% above its pre-pandemic level, making it the best performing category.

Sales at restaurant and bars declined by $2.4bn in December, reflecting the increased restrictions from the worsening pandemic. Surprisingly, sales at grocery and liquor stores also declined sizably, by $1.0bn. Note that sales at restaurants and bars were $1.2bn above sales at grocery and liquor stores in January 2020, but ended the year $19.1bn below (Chart 5). The former has been the worst performing retail category throughout the pandemic (Table 1).

Two out of the three housing-related retail categories declined in December (Chart 6). Furniture store sales declined by 0.6% m/m, its third consecutive monthly decline, and sales at electronics stores tumbled by 4.9% m/m following its decrease of 8.3% m/m in November. Building materials and garden equipment store sales continued to outperform, rising by 0.9% m/m and placing it 15.3% above its February level.

December’s retail sales set a low baseline for consumption (set for release on January 29). Retail sales has outperformed consumption because consumption includes a broader range of services which have been disproportionately impacted by the pandemic. As of November, consumption was 2.1% below its pre-pandemic level. We expect consumption in Q1 to be boosted by the $600 income support checks to households and the enhanced unemployment compensation from the government. Once conditions begin to normalize this year, we expect the release of pent-up demand and massive cumulative excess household savings to boost consumption, especially of services (Global outlook 2021: strong rebound ahead, January 8, 2021).

Table 1: Retail sales trends since February

Sources: Census Bureau and Berenberg Capital Markets

Chart 1:

Chart 2:

Sources: Census Bureau and Berenberg Capital Markets

Chart 3:

Chart 4:

Chart 5:

Chart 6:

Roiana Reid, roiana.reid@berenberg-us.com

Member FINRA & SIPC
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