The consumer has been a key supporting force for the US economic recovery but recent data suggest that the trajectory for spending may now be moderating. Retail sales have fully recovered their losses from earlier this year, yet October’s 0.3% monthly increase was the smallest monthly gain since the plunge in spending in the spring. High-frequency data show that broader economic activity is beginning to slow against a backdrop of rising Covid-19 cases in the US. With another fiscal support package unlikely to come until next year and further restrictions on activity quite feasible, the near-term economic outlook is deteriorating. Progress towards a vaccine may have increased the willingness of investors to look through short term weakness to an extent, but the path to much stronger levels of economic output in the latter part of 2021 will still be bumpy.

US retail sales at risk of losing momentum

Index level, rebased to 100 in January 2018