Rising Covid Cases Hamper the Economy - Dec 21, 2020
Daily Covid cases have jumped and many state officials have introduced new restrictions, which is beginning to have an impact on the economy.
In November, retail sales fell 1.1%. Ex-autos, sales were down 0.9%. As Figure 1 illustrates, sales came roaring back earlier in the year thanks to generous jobless benefits, $1,200 stimulus checks, job growth, and the re-opening of businesses.
But the economy and the unemployment rate have not returned to pre-Covid levels, and the uptick in cases is creating new hurdles.
Layoffs, as measured by the Dept. of Labor’s weekly first-time jobless claims, have also turned higher. If we can point to one silver lining, we’re not seeing the kind of surge in layoffs we saw in March.
A tale of two industries – groceries and restaurants
When the pandemic hit and lockdowns began, consumers rushed out to stores to stock up on staples. We see that with the surge in sales at grocery stores – see Figure 2. Meanwhile, as lockdowns began in March, patronage at restaurants fell sharply.
Sales at restaurants have bounced back but remain below pre-pandemic levels, while activity at grocery stores remains well above pre-Covid levels. It helps explain why aisles are not fully restocked.
Note that sales turned down at restaurants in November, but we saw an uptick in activity at groceries last month. New closures and increased restrictions appear to be funneling dollars and customers away from restaurants and back to grocery stores.
While the economy is feeling pressure from new restrictions, some sectors continue to support overall economic activity, including the strong housing sector.
Forecasting the economy short-term is dicey. However, given recent action in the stock market, investors still believe we will see a stronger economy in the middle of next year, even if the path to improvement isn’t a straight line.
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Have a very Merry Christmas and a joyous holiday!