INDICATOR: November Retail Sales and December Housing Market Index

KEY DATA: Sales: -1.1%; Ex-Vehicles: -0.9%/ NAHB: -4 points

IN A NUTSHELL: “Two consecutive declines in retail sales just may be the start of the expected consumer slowdown, and with restrictions rising, it could get worse.”

WHAT IT MEANS: The economy got a shot in the arm this week, but it will be months before the vaccine works itself through the system. Right now, the virus is in full control and we see that in the retail sales numbers. In November, demand fell for the second consecutive month. The drop was minimal in October, but the trend is changing in ways that reflect the ubiquitous nature of the pandemic. People are staying away from crowded environments and clothing, electronic, appliance, sporting goods and department, stores all saw sales crater. The rebound in vehicle demand is also beginning to wane and, not surprisingly, restaurants took another big hit. It is hard to see that those retailers will experience a rebound anytime soon. The only strong component was building materials/home product stores. Online demand was up modestly, but that may be a result of Amazon Days being held in October. That purchases rose was surprising, given how big the Amazon and other online company sales were, and that may point to a continued movement away from bricks and toward clicks.

As for the housing market, it remains the leader of the pack. Yes, the National Association of Home Builders’ index fell back in early December, but when you are at record levels and you stay near those levels for the headline as well as all of the subindices, it is hard to say conditions are weakening. Indeed, the only two months where the expectations index was higher than it is right now was the previous two months. In other words, builders are hyper-optimistic. Whether that is irrational or not, well we shall see.

IMPLICATIONS: The vaccine is here, but if we believe the experts, which I do, it will take a good portion of next year to get most people vaccinated. That assumes most people will opt to be vaccinated. The unwillingness over the past few months to take the necessary actions to limit the surge in the virus has led to an out of control situation that is being met by growing numbers of closures. Consequently, we should expect that the weakening in consumption will continue through the first quarter of next year. But at least we can have some confidence that the light at the end of the tunnel is not the oncoming train. That train has already run over us. It is picking up the pieces that we have to worry about. Of course, investors may not be even aware that there has been any damage to the economy and with a likely stop-gap stimulus bill being passed sometime reasonably soon, don’t be surprised if the market celebration continues. Regardless of what is happening on Wall Street, we are looking at is the distinct possibility that both fourth and first quarter will be disappointing. They will be positive, but don’t expect consumption or investment to be strong. Most of the growth could come from inventories. And then we have to determine the medium-term damage the pandemic has had on the economy. Those impacts will not be realized until the government’s financial crutch is removed. Undoubtedly, the Biden administration will ask for more ais and undoubtedly there will be significant push-back from Republicans. How that plays out is unclear as Georgia will determine the ability of the Biden team to get its policies passed. Since economic policy depends so much on the outcome in Georgia, it is hard to forecast what 2021 will look like. But the latest data point to a slower year than many are now predicting.

Joel L. Naroff is the president and founder of Naroff Economic Advisors, a strategic economic consulting firm.