US retail sales grew at a slower pace than economists had predicted last month -- prompting worries about a "difficult winter" with lower consumer spending before a recovery next year.
Retail sales increased by 0.3% to $553.3 billion on a seasonally adjusted basis in October, the Census Bureau reported on Tuesday. That's below expectations of a 0.5% increase, and it's down from a revised 1.6% in September.
Boosting that figure significantly were sales of cars and car parts. They have been buoyant since the summer and continued to increase at a faster rate last month, pushing the overall sales numbers up. Stripping out cars, retail sales increased only 0.2% in October.
Meanwhile, nonstore sales, such as online purchases, jumped 3.1%. Economists said that was probably largely due to Amazon's Prime Day in mid-October. In-store sales declined further.
At first blush, this might not sound like great news about spending by the American consumer, the engine behind the nation's economy. But experts still see some positives in the data.
Economists at Morgan Stanley noted that retail sales are still up 8.5% from the same month last year and stand at $26 billion above their pre-pandemic February levels.
It's a muddled picture, but the bottom line is a resilient economic outlook following "a difficult winter," the economists wrote in a note to clients on Tuesday. For example, Morgan Stanley expects consumer spending in the services sector to return to its pre-pandemic level by mid-2021.
In the meantime, though, the road back to normal will require making it through the tricky winter months and the renewed surge in Covid-19 infections, which has led to new restrictions on public life around the world.
The first phase of the recovery included fiscal support to incomes that drove spending higher. It won't be quite that simple in the second phase of the recovery, said Gregory Daco, chief US economist at Oxford Economics.
"Phase two of the recovery is significantly slower with muted employment gains and reduced fiscal aid weighing on incomes, and a worsening Covid outbreak once again limiting activity across the country."
Federal Reserve Chairman Jerome Powell has repeatedly said that the economy can only fully recover once the pandemic is under control.
The United States is still down about 10 million jobs since February, with millions of people relying on government aid to make ends meet. Various programs designed to help jobless workers during the pandemic are expiring at year-end.
Both Pfizer and Moderna have announced promising results from their Covid-19 vaccine trials, which have led to optimism in the markets and business community. But finding a vaccine is not the same as distributing and administering a vaccine to millions of people.
While it certainly is good news for the year ahead, near-term challenges remain.
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