Late last week, when December payrolls showed the leisure and hospitality industry shed nearly a half million jobs, I suggested the read-through for consumer spending was not good.
While it’s common sense that people who lose their jobs will be reluctant to spend money, it goes beyond that. In America’s services-driven, consumption-addicted economy, “the people providing the services for meager wages are in most cases the same people consuming them when they’re not providing them,” as I put it late in November.
That circular dynamic means mass joblessness in leisure and hospitality bodes ill indeed for spending. Bloomberg’s Chris Anstey managed to hit on it last week. “With half a million fewer folks working in the leisure and services industry, they are unlikely to have boosted their spending and the places where they worked were unlikely to have done more business last month,” he said.
Fast forward a week and sure enough, retail sales for December missed — and badly so.
Sales fell 0.7% for the month, very nearly matching the most pessimistic estimate from 70 economists (the low-end of the range was -0.8%). Consensus was looking for an unchanged print.
November’s already disappointing 1.1% drop was revised lower to show a -1.4% decline. Ex-autos, sales dropped 2.3% in December. The market was looking for just a 0.2% drop.
The control group posted a 1.9% MoM decline, the fourth-largest ever. Consensus there was for a small (0.1%) gain. That miss — in the control group — was a near four-standard deviation downside “surprise.”
Notably, the nonstore decline was 5.8%. That’s in the top five largest declines on record, going back nearly three decades.
Between this, Thursday’s jobless claims debacle, and lackluster December payrolls, it’s abundantly clear that the US economy needs additional stimulus.
The mechanical rebound from the worst collapse since the Great Depression is over. The momentum is gone. Empire manufacturing missed on Friday as well.
Maybe this will help Joe Biden marshal support for his $1.9 trillion stimulus plan among Republicans, although somehow, I doubt it.