Posted by Alan Beaulieu on Dec 23, 2020 10:40:23 AM

Here Are Two Reasons Why

The headlines trumpeted that Retail Sales fell in November, a move that many did not see coming. For the record, Retail Sales are on track with our forecast. The concern raised by others regarding November’s drop is that consumers have pulled back, and that could signal trouble for the economy in 2021. It doesn’t look that way to us here at ITR Economics.

“Retail Sales” is a very broad descriptor that encompasses store and non-store sales. A more complete definition is provided below1. The US Census Bureau reports a 1.3% decline in Retail Sales from October to November. The last time November came in below October was in 2008 (-4.1%). Before that, it happened in 2003 (-0.9%) and 2001 (-1.4%); US GDP continued to rise in the fourth quarters of 2003 and 2001. 

Takeaway #1 is that the unsettling November decline in Retail Sales does not negate GDP rise in the fourth quarter and/or negate our forecast of ongoing recovery in 2021.

Retail Sales for the year as a whole are on track to come in above 2019. Here is how we know. Let’s assume a weak scenario to finish the year. For instance, the 2018 November-to-December rise of 7.4% was the mildest in post-World War II history. To put that in perspective, the average for the last 10 years is 13.3%. A repeat of 2018’s anemic rise would push the 4Q20 3MMT to 2.5% above 4Q19. The entire year would come in just slightly above all of 2019. Even a rise that is one half of 2018’s weakest-on-record rise would still result in a positive 3/12 of 1.3% and ongoing 3MMT rise. 

Takeaway #2 is that it would take a stunningly and improbably poor December to have the last quarter of 2020 come in below the year-ago quarter.