In addition, as discussed below, President-elect Biden has proposed a further US$1, 400 cash disbursement to most individuals as well as increased unemployment insurance. It is likely that Biden’s proposal, in some form, will pass the Congress within the next two months. If so, and if the virus is adequately suppressed, it could set the stage for a rebound in retail sales. Moreover, if there is an acceleration in vaccine distribution in the coming months, the result could be a much different environment by the second half of 2021. In December, for the third consecutive month, retail sales declined from the previous month. It is clear that the worsening pandemic during the fourth quarter of 2020 had a negative impact on consumer spending. In December, overall retail sales were down 0. 7% from November and were up only 2. 9% from a year earlier.
This was likely due to strong US demand for PPE and online technologies. For all of 2020, China’s bilateral trade surplus with the United States reached a record high. As noted in these pages in the past, a bilateral trade imbalance between two countries is meaningless from an economic perspective. However, it is evidently meaningful to many political leaders and the voters with whom they communicate. Thus, the current US administration made reducing that imbalance a key goal. Interestingly, Chinese imports from the United States were up a stunning 47. 7% in December versus a year earlier. This likely reflected a serious effort on the part of China’s government to meet the import targets established by the so-called phase one agreement on trade that was signed last year.
By one estimate, China’s imports from the United States in the first 11 months of 2020 grew only half as fast as needed to meet the aggressive import targets. Given the pandemic, it was never expected that China would come close to meeting the targets. That fact caused concern in China that failure would generate trouble with the United States. Indeed, China was keen on pleasing the United States in order to avoid further trade sanctions. That being said, a Democratically controlled Congress is likely to do some things that are not popular with the investment community. These are likely to include boosting the top marginal tax rate, raising the corporate tax rate, and appointing regulators that could impose new costs on business. Ordinarily, the expectation of such policies would have a negative impact on equity prices.
An increasing number of districts are reporting declines in employment. Job growth is strong in manufacturing and construction, but employment is falling in the leisure and hospitality sectors. Regarding manufacturing, the Fed noted a shortage of labor as companies struggle to convince people to come to work in the midst of the pandemic. The overall decline in retail sales happened at a time when the number of infections was soaring and when some states were imposing limited restrictions on economic activity.
Interestingly, there was strong growth in sales of automobiles and gasoline. However , when these two categories are excluded, non-auto, non-gasoline retail sales were down 2 . 1% from the previous month, a very sharp decline. These included electronics and appliance stores (down 4. 9%), grocery stores (down 1. 7%), department stores (down 3. 8%), restaurants and bars (down 4. 5%), and non-store retailing (down 5. 8%). The last was surprising given that non-store retailing had grown strong in 2020, partly offsetting the decline in store-based sales. In contrast, sales at home improvement retailers were up 0. 9%, clothing stores were up 2 . 4%, and drugstores were up 1. 1%. Whether or not this will be as important under a Biden Administration as under the Trump Administration remains to be seen. Meanwhile, China’s exports to the United States were up 34. 5% in December versus a year earlier.
Now that we are in January and the number of infections continues to increase, it seems likely that retail sales will not perform well during this month and could decline again. At the same time, a new stimulus package was passed at the end of December, which provided US$600 to most individuals and provided extended unemployment insurance to millions of unemployed workers.