Bank Accounts Shrink

The November retail sales report wasn’t good. It shows the need for additional stimulus. Many will criticize the $600 checks and the 11 weeks of $300 in unemployment insurance, but it will have a significant impact on spending to start the year. Of course, many want more money, but that’s not up to us. We just play the hand we are dealt.

The checks probably won’t impact December retail sales, so another weak report is coming since there have been more shutdowns and initial claims have increased (although if they go out early next week that would bump up results in December). It’s notable that stock investors are ignoring the weakness in consumer spending as the S&P retail ETF is up 27% since October 30th. They agree with the consumer survey we detailed in a previous article that said consumers expect the highest spending growth since July 2016.

It’s important to look at the report even if you choose to ignore it for trading. You can’t just turn off your macro screens and come back in March. You will have a discontinuous understanding of the macro framework. Headline monthly retail sales growth was -1.1% which missed estimates for -0.3% and the lowest estimate by 4 tenths. Plus, October’s reading was revised lower by 4 tenths to -0.1%. There was an easy comp and growth was still bad. Furthermore, core retail sales growth was -0.5% which missed estimates by 6 tenths and the lowest estimate by 2 tenths. Again, October’s numbers were revised lower to 0% from 0.2%.

There is a big difference between yearly retail sales growth with and without food services because of the pandemic. Indoor dining is closed in NYC, so the results will be even starker in December. Retail sales growth including food services fell from 5.5% to 4.1%. Without food services, growth was fell from 8.3% to 7.1%. The chart above shows the breakdown of the report. There was some stocking up on food and beverages like in March and April, but the trade to buy firms that benefit from this isn’t working because investors see this as temporary now that we have the vaccines. Moderna’s vaccine was approved on Friday. 

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