November 3, 2020

The U.S. Election and U.S. Retail Sales

by Jharonne Martis.

The latest Refinitiv/Ipsos poll shows that one-third of Americans say the economy and jobs are the main problems facing the country (30%). Twenty-two percent believe the biggest problem is healthcare; another 18% cite the coronavirus and the Trump administration.

Consumer spending accounts for nearly two thirds of the U.S. economy. If consumers feel the unemployment situation will deteriorate, they will put their hands in their pockets and hold back on spending.

The latest official unemployment rate was 7.9% as of September, according to the U.S. Bureau of Labor. That equates to about 12.6 million people. The latest October estimate for the unemployment rate is 7.7%, on track for six consecutive months of decline, as per the Refinitiv IFR team.

This bodes well for consumer spending as the latest Refinitiv earnings data suggest an improvement for the second half of the year. Many retailers were closed for the first half of the year during the early months of the pandemic, causing earnings to drop 41.8% in the first half. Notice how this is expected to improve into the second half of the year (Exhibit 1). This recovery is mainly driven by online retail sales.

Exhibit 1: Retail and Restaurant Earnings Growth Rates Actual and Estimates: Q4 2019 – Q4 2020

Source: Refinitiv I/B/E/S

The pandemic has substantially accelerated the pace and shift to online shopping. E-commerce sales grew to 16.1% as a percentage of total U.S. retail sales in Q2 2020 and are expected to grow further to 16.4% in Q4 2020, according to Refinitiv IFR (Exhibit 2).

Exhibit 2: E-Commerce as a Percentage of Total U.S. Retail Sales

Source: Refinitiv IFR

For the first half of the year, U.S. retail e-commerce sales totaled $371.9 billion, an increase of 29.6% from the first quarter of 2019. This is expected to grow substantially to $452.8 billion, a 46.1% YoY growth, in the second half of the year, according to Refinitiv IFR. Consumers are shopping online more than ever to stay safe during the pandemic.

Still, consumer spending is highly dependent on confidence in the economy and improvement in the job market. Unless there is a decisive winner in the presidential election, the economy is vulnerable to the risk associated with a contested election.

What’s more, if one party holds a Senate majority, it will help determine the direction of the economy, fiscal policy, and further stimulus plans to support the economy. This is critical to an improvement in the job market and retail sales.

There’s also been a lot of commentary around undecided voters and how they can help move the needle. “In the final week before the election, Reuters/Ipsos asked the remaining undecided voters who they would choose if they had to pick a presidential candidate, and, among likely voters Biden (52%) maintains his edge over Trump (45%).” The full survey is here:


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