Consumer spending fell for the third consecutive month in December, confirming what many economists had predicted would be a disappointing holiday season for many retailers and restaurants.
Retail sales fell 0.7 percent last month, the Commerce Department said on Friday, as the economic recovery showed signs of stalling and virus cases surged across the country, prompting shoppers to avoid stores amid a new wave of restrictions.
For the second straight month, the drop was worse than what most economists had predicted, showing that the deterioration of the broader economy in the final quarter of 2020 was deeper than expected.
“In one line: grim” was how Ian Shepherdson, the chief economist at Pantheon Macroeconomics, described December’s retail sales in a research note on Friday.
“We think that fear of the third Covid wave, and the restrictions imposed across much of the country to suppress it, did most of the damage to retail sales in the past two months,” he added.
The drop was widespread across many categories, including electronics, autos, and food and beverage stores, which had been areas of strong spending last spring and summer but declined toward the end of the year. Spending at restaurants in December was down again amid a rise in new cases and closures.
The decline most likely also reflects how retailers’ strategies of offering holiday deals early in the fall spread out the holiday shopping season across months, and may have dampened sales closer to Christmas.
The Commerce Department also revised its November sales data, showing a decline of 1.4 percent, larger than the 1.1 percent drop it had previously reported.
The weakening consumer spending, which makes up 70 percent of the U.S. economy, adds new urgency to the $1.9 trillion economic rescue package that the incoming Biden administration proposed this week, which would increase direct payments to individuals by $1,400.
“This likely is the nadir for retail sales, as the late December stimulus and the pending stimulus under the Biden administration will boost both bank accounts and consumers’ spirits,” Robert Frick, corporate economist at Navy Federal Credit Union, said in a statement.
But other economists said Americans were more likely to save their stimulus money than to spend it over the next few months, especially as businesses remain closed.
The retailers’ trade group looked for the bright spots in the commerce report, highlighting that holiday shopping was higher last year than in 2019, with sales growing 8.3 percent.
“Faced with rising transmission of the virus, state restrictions on retailers, and heightened political and economic uncertainty, consumers chose to spend on gifts that lifted the spirits of their families and friends and provided a sense of normalcy given the challenging year,” Matthew Shay, president of the National Retail Federation, said in a statement.
But there is evidence that an ever increasing number of those sales are going to giant retailers that have been able to use their scale and digital abilities to grab larger market share during the pandemic.
One such retailer, Target, said on Wednesday that its sales in November and December were up 17.2 percent from a year earlier, a rise driven both by in-store and by online shopping. Target’s digital sales were the biggest area of growth, more than doubling from the 2019 holiday season. The vast majority of those deliveries were made from Target stores.
Amazon has also said its holiday sales in 2020 hit a record, but it has not yet provided detailed figures.
Over all, online shopping was up 32 percent to $188 billion during the 2020 holidays compared with the previous year. But the weakness in the December retail sales figures shows that, despite the rise in e-commerce, the bulk of consumer spending — like food, auto sales and dining — still takes place in physical settings that remain restricted because of the pandemic.
That reality, Mr. Shepherdson said, means that even with the stimulus expected to flow to consumers in the early weeks of the Biden administration, spending could remain depressed for the next several months.
“We expect consumers’ spending to struggle until falling Covid cases allow restrictions to be eased, starting in March,” he said.