How the spread of COVID-19 is slowing down the economy: Morning Brief

Thursday, December 17, 2020

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Retail sales falter in November as COVID spreads.

Vaccine deployment beginning this week makes clear there is light at the end of the pandemic tunnel.

And while investors are looking ahead to better days in 2021, the economy cannot escape the impact the virus is having on activity right now. And is likely to have in the months ahead.

Retail sales in November were reported Wednesday morning, showing a 1.1% decline from October. This drop was larger than the 0.3% decline expected by economists.

The categories with the biggest drop offs were areas directly related to activities that involve travel, gathering, and dining out, all of which have either been discouraged or explicitly reined in by lawmakers across the country.

Paul Ashworth, chief U.S. economist at Capital Economics, said following Wednesday’s report, “The latest surge in coronavirus infections, which has forced a number of states to re-impose increasingly draconian lockdowns, resulted in a worse-than-expected decline in retail sales in November. With case numbers still trending higher and restrictions getting tighter, we anticipate a further decline in spending this month too.”

Ashworth singled out the declines in sales at gas stations, which fell 2.4% over the prior month, and food service sales, which dropped 4% over the prior month, as signs that both mandated and encouraged changes in behavior are slowing the economy.

Elsewhere on Wednesday, IHS Markit’s first look at business activity in December showed a slowdown in the pace of growth to start the month. Chris Williamson, chief business economist at IHS Markit, said this data shows, “December has seen companies rein in their expectations, given the higher virus case numbers and tougher lockdown stances adopted in some states.”

In a press conference on Wednesday, Federal Reserve Chair Jay Powell said, “a full economic recovery is unlikely until people are confident that it is safe to re-engage in a broad range of activities.”

So while we can see the end of an era in which the economy and our daily lives are held back by the spread of a novel coronavirus, there are challenges yet to overcome in the winter of 2021.

“The economy will bounce back strongly in the second quarter as vaccine deployment reaches critical mass, allowing restrictions to be eased,” said Ashworth, “but until then it’s going to be a long bleak winter.”

By Myles Udland, reporter and anchor for Yahoo Finance Live. Follow him at @MylesUdland

What to watch today

Economy

  • 8:30 a.m. ET: Initial jobless claims, week ended December 12 (815,000 expected, 853,000 during prior week)

  • 8:30 a.m. ET: Continuing claims, week ended December 5 (5.7 million expected, 5.757 million during prior week)

  • 8:30 a.m. ET: Building permits, November (1.560 million expected, 1.544 million in October)

  • 8:30 a.m. ET: Housing starts, November (1.535 million expected, 1.530 million in October)

  • 8:30 a.m. ET: Philadelphia Fed Business Outlook Index, December (20.0 expected, 26.3 in November)

  • 11:00 a.m. ET: Kansas City Fed Manufacturing Activity Index, December (10 expected, 11 in November)

Earnings

Pre-market

  • 7:00 a.m. ET: General Mills (GIS) is expected to report adjusted earnings of 97 cents per share on revenue of $4.65 billion

  • 7:00 a.m. ET: Rite Aid (RAD) is expected to report adjusted earnings of 1 cent per share on revenue of $5.84 billion

Post-market

  • 4:00 p.m. ET: FedEx (FDX) is expected to report adjusted earnings of $4.01 per share on revenue of $19.43 billion

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