Jobless Claims Struggle to Fall Despite Bullish Spending Seen in Retail Sales

Economic Report Monitor #53

July 16th, 2020

The previous choppy bullish trading session was reversed into a choppy bearish trading on Thursday as indexes headed for a loss. The Nasdaq, down -0.73%, underperformed the Dow Jones Industrial Average and the S&P 500 again, down -0.50% and -0.34%. Over the last 5 days, information technology stocks have dropped -2.75%, the most in a list of 11 sectors, with energy leading at 5.57%. This differs greatly from the YTD performance where information technology is up 17.51%, well above the -37.78% movement in energy. It seems money might be avoiding the sectors which have benefited the most in the rebound as a resurgence could crash them harder. Economic reports confirmed the shaky status in a mixed bag of data points.

Most notably, initial jobless claims came in above 1 million once again at 1.3 million, just 10,000 lower than the week before. Overall insured unemployment also fell but again only at a slow pace. Totaled continued claims were 17.760 million, down just 302,000 from 18.062 million. The jobless claims have certainly not pointed to a V-shape rebound in May or June as the malaise of the labor market looks to extend into the early second wave. Expectations will be that initial claims begin to rise again as businesses close in a second wave. Or rather if they close in a second wave. Regardless, capacity in most industries, except the most needed, will likely be underused running through the end of 2021.

Core Retail Sales from Sri Thiruvadanthai @teasri

Retail sales in June rebounded 7.5% after an 18.2% gain in May. The strong bounce continued in stores most affected by the lockdown as reopening in June bolstered spending. Motor vehicles and parts spending was up 8.2%, furniture was up 32.5%, electronics & appliances were up 37.4% and clothing stores saw a whopping 105.1% increase. Food services, which was only open in states where restrictions were lifted early, jumped 20.0%. Stockpiling appears t have slowed as grocery stores were down -1.6%. On a yearly basis, several of the industries mentioned above that rebounded strongly are still down. However, looking at core retail sales, retail spending looks to have recovered almost completely to pre-COVID 19 levels. The image above looks especially bullish despite the individual data points appearing mixed.

Business inventories seem to confirm the resurgence in spending as they continued to drop in May, down -2.3%. Retailers lead the contraction in inventories as they saw a -6.2% drop likely a result of the strong 17.1% retail sales number. Once again, the hardest-hit industries bounced: motor vehicle inventories dropped -14.9%, furniture down -6.2%, building materials down -2.6%, and clothing down -2.8%. All of these industries saw inventories contract in April as well, but this month the drop came with a jump in retail sales suggesting the move had less to do with supply chain adjustment and more to do with consumption being higher. Inventory/Sales ratios settled into a normal range with some above and below the level a year ago. Vehicles and building materials ratios were actually lower than a year ago while furniture and clothing are still above. Outside of retailers, manufacturers and wholesale saw less inventory movement. at up 0.2% and down -1.2% respectively. This was likely a result of softer rebounds in sales activities compared to retailers.

If retail sales and business inventories were optimistic than the Philadelphia Fed Manufacturing Survey softened some of that optimism. The July general business activity index fell slightly from 27.5 to 24.1 with six months expectations taking a bigger hit, dropping from 66.3 to 36.0. The current view of new orders and shipments was slightly expansionary, but just about at the levels of June. A majority of respondents in both categories marked "no change" or "decreasing" despite the indexes being positive. Expectations for both deteriorated from mid-to-high 60s to mid-to-low 50s. Prices paid were mostly flat in both current measures and expected. The most positive data from the survey was a solid increase in number of employees and average employee workweek, both up from contracting to expanding. Only about 9% of respondents reported these measures decreasing with 25-30% reporting increasing. Expectations for employment also when up but only slightly

Finally, the NAHB/Wells Fargo Housing Market Index ended with an impressive July report. Its indexes reported that the housing market is essentially back to pre-COVID 19 levels. The composite index was at 72, up from 58, and just 2 below the February reading of 72. The present single-family sales index increased to 79 and 6-month single-family sales index edged higher to 75, both just below the February reading. Prospective buyers are also flying back into the market with that index up to 58, one higher than the February data point. This has happened in all four regions that the index covers with no region lagging significantly. This report and hopefully others in the future confirm a V-shape recovery in real estate. Will a resurgence in cases reverse that? That remains to be seen, but now that guidelines for businesses are in place so that they can stay open relatively safely, this market can operate mostly normally in order to keep up the demand for housing that clearly exists.