Retailers just got one more reason to worry about the upcoming holiday shopping season.
What’s happening: US retail sales increased by only 0.3% compared to the previous month in October, a slower pace than economists had predicted and well below the 1.6% growth logged in September.
Spending in some categories declined compared to the previous month. Clothing stores, department stores and sporting goods stores all saw sales drop by more than 4%.
The data shows “the slowest pace of growth since the sharp contractions when the pandemic first hit,” Deutsche Bank’s Jim Reid told clients Wednesday. “The soft reading will add to concerns with the coronavirus case numbers surging once again.”
States are issuing a new wave of mask mandates and social restrictions as record numbers of Covid-19 hospitalizations and soaring daily cases strain US hospital systems.
“The months ahead are going to look better than the weeks ahead,” former US Food and Drug Administration commissioner Dr. Mark McClellan said Tuesday at an event hosted by Duke University.
These changes could hurt consumer confidence and hit spending during the most important time of the year for retailers. Stores tied to shopping malls that haven’t invested as much in their online presence could be hit particularly hard.
Watch this space: The weak retail sales reading raises the profile of key earnings announcements this week. Lowe’s, Target and TJX are due to report results Wednesday, while Macy’s follows on Thursday.
Walmart said Tuesday that comparable US sales — its main metric — rose 6.4% last quarter. That’s still solid, but below sales growth logged during the first two quarters of the year, as people rushed to stock up on food and other supplies. Shares fell 2%.
Not all bleak: Despite the pandemic, retail sales have now managed to log six straight months of growth. In October, retail sales grew 5.7% compared to October 2019, and they’re $26 billion above February levels.
“[This] shows how much government and central bank stimulus has propped up spending,” Reid said.
Yet concerns are growing that US lawmakers won’t be able to agree on additional assistance by the end of the year, given political divisions in Washington. UBS said Tuesday that its six-month consumer outlook indicator had turned negative.
“As a widespread vaccine distribution may not start until mid-[2021], US consumers expect social restrictions to extend and continue to lower their employment views,” the bank’s strategists said. “Personal financial and economic views are fading, too, as the recovery is slowing, and with a divided government more likely the expected fiscal stimulus is muted.”
