Consumer spending and incomes could take hit, as business restrictions aim to curb surge of infections

The U.S. economy has entered an odd sort of limboslowing, as it ends an unusually rough year, but with a possibly stronger recovery looming ahead.The latest economic readings, due out Wednesday, are expected to show that U.S. households cut spending in November, which would be the first drop since April, according to economists surveyed by The Wall Street Journal. The Commerce Department report is also projected to show a drop in household income last month, as the effects of federal-aid programs earlier this year fade. A separate report by the Labor Department is expected to show another rise in weekly jobless claims, a proxy for layoffs.Businesses across the U.S. have been forced to shut or scale back operations in recent weeks, as states and cities try to curb the spread of the coronavirus. Economic growth appears to have slowed this winter as a result.
Consumer spendingthe linchpin of growth in the worlds largest economy, representing more than two-thirds of demand herehas grown more slowly in recent months and could remain weak for the short term.
Next years economic outlook is brighter. Congress on Monday passed a roughly $900 billion pandemic-relief package that includes a new round of $600 stimulus checks for most individuals and enhanced unemployment benefits. Authorities this month began giving some essential workers and other vulnerable Americans the vaccine against the virus, the start of a monthslong process that could eventually lead the economy to more fully reopen. Some economists think gross domestic product could grow by a robust 5% or more next year.
For now, many businesses and households are struggling in what is shaping up to be a rough winter.
Katie Anderson-Tedder, 35, has the perspective of both retailer and shopper. The married mother of two young children manages Andersons Candy Shop, in Richmond, Ill., on the Wisconsin border. The store, owned by her father and in her family for 101 years, makes and sells chocolates.
The store has shifted most sales online during the pandemic. Sales are down by 20% to 30% this year, Mrs. Anderson-Tedder estimates, but she still cant find enough workers to make candy and meet the demand. Many employees are too scared of infection to return to work; others are parents who must stay at home to watch their children with schools holding classes online or day care closed.
The drop in sales has pinched her own income, leading her and her husband to cut back on spending. The couple are skipping buying each other Christmas gifts this year and cutting what they spend on gifts for friends and family.
Normally, we budget a certain amount that were going to spend on brothers and sisters and cousins and nephews and nieces, she says. There are people who are just going to get a card this year and a letter or people who maybe get $20 worth of gifts instead of $40.
Most economists still think the economy will continue to expand this winter. But the growth is expected to be far weaker than the third quarter, when gross domestic product surged at an annual rate of 33.4%, a record for one quarter. That rebound wasnt enough to make up for the sharp drop in output in March and April, when the pandemic shut down much of the U.S. economy.
The forecasting firm
IHS Markit
believes output will have grown at a 6.1% annual rate in October through December. The Atlanta Federal Reserves GDPNow model projects 11.1% annualized growth for the fourth quarter.
Other measures suggest consumers have reined in spending.
U.S. retail salesa measure of how much Americans spend on cars, groceries, gasoline and other goodsfell 1.1% in November, the Commerce Department said last week. Sales also fell in October, ending several months of growth.
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Consumer spending is being hit by two main factors. The first is that households have less money to spend compared with this summer, when federal-relief programs provided stimulus checks, enhanced unemployment benefits and help for small businesses. Some of those programs have expired or are winding down. Household income fell in October.
The second factor is that consumers have fewer opportunities to spend after states and cities put in place a new round of business restrictions designed to combat another surge of virus infections.
Write to Josh Mitchell at joshua.mitchell@wsj.com
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