Stimulus Delay, COVID Surge Set to Crunch U.S. Retailers During Crucial Holiday Season

Retailers are treading on tricky ground heading into the holiday season, as sales have slowed and the pipeline for the rollout of a COVID-19 vaccine still seems some way off.

U.S. retail sales increased less than expected in October and are set to slow further, held back by a rise in coronavirus cases and the millions of unemployed Americans who do not know when the next round of government financial support will come.

Financial markets moved lower overnight on the news that retail sales had risen just 0.3 percent—0.2 percentage points lower than expected by economists polled by Reuters. This is the smallest gain since the start of the recovery in May and compares with a 1.6 percent rise in September, according to the Commerce Department.

Retailers are hoping for a bump in sales during the festive period to remedy this. Booksellers will be looking to Barack Obama's memoir A Promised Land in particular to buoy their figures.

However, one year since COVID-19 was first detected in China, the nation is riding out a second wave of the pandemic and it is not known when a second stimulus package will come.

Since the presidential election, Joe Biden has spoken about the need for another round of stimulus. "One of the urgent things that need to be done is people need relief right now," he has said. A fresh bill may not emerge until Biden's administration takes office in January.

"US retail sales sent a warning shot that COVID-19 is still with us, and its effects will not miraculously disappear overnight," Jeffrey Halley, senior market analyst for Asia Pacific at OANDA, wrote in an email. "There will be an inevitable flow through into the data for November and December. COVID-19 may still be the Grinch who stole Christmas."

Halley also noted that fourth-quarter earnings might feel an effect and the recovery some economies have seen in the third quarter will be difficult to sustain, including in countries such as China.

Other analysts are cautious on the outlook for the U.S.

"It looks like consumer spending is increasingly turning into a headwind for this recovery from the worst economic downturn since the Great Depression," Chris Rupkey, chief economist at MUFG in New York told Reuters, adding that the Federal Reserve might need to step up measures to support the economy.

Moderate sales growth is expected by economists for the rest of the year, contributing to slower economic growth. This follows a GDP boomerang that included the biggest rebound since records began in 1947. Estimates for fourth-quarter growth in sales now sit below an annualized rate of 5 percent.

A JP Morgan survey has already found a broad decline in spending up to November 9, with the biggest drops in states where COVID is spreading quickly.

Black Friday sales
Shoppers walk past a Black Friday sales poster in Los Angeles on November 29, 2019. Retail sales slowed in October. MARK RALSTON//AFP via Getty Images