The Market Today

Retail Sales Plunge Record 16% As Consumers Batten the Hatches

by Craig Dismuke, Dudley Carter


Coronavirus Chartbook (Click Here) – Updated by 9:00 a.m. CT

Monitoring the Covid Re-opening Headlines: New Jersey’s Governor announced beaches on the Jersey Shore will be open for Memorial Day and in all other locations by the last weekend of the month. Florida’s Governor said Miami-Dade and Broward could begin to lift restrictions and noted that he would make an announcement on gyms on Friday. Governor Cuomo indicated that the central New York region now qualified under the criteria and could ease restrictions. Illinois’s Governor said all regions in the state were on track to qualify to re-open when the stay-at-home order expires on May 30.

Monitoring Other Covid Headlines: The U.S. Treasury extended the deadline for companies to return PPP loans they no longer qualify for until May 15. Treasury Secretary Mnuchin said again he prefers to wait before considering additional stimulus but noted that the House bill is essentially a non-starter. Senate Majority Leader McConnell called the bill a “totally unserious effort” while House Speaker Pelosi said she was open to negotiation but that Congress needed to come together to pass more aid. A large portion of the bill’s funding would go to hard-hit state and local governments, which continue to see finances crushed by the pandemic. California’s Governor said unemployment in his state will peak near 25% and announced deep cuts to the budget. He is negotiating with labor unions for a 10% pay cut, and would spend roughly half of the state’s rainy day fund over the next year.


Retail Sales Plunge Record 16% As Consumers Batten the Hatches: This morning’s economic data will get to the heart of how much damage has been done.  Specifically, retail sales in April highlight the record damage done to consumption from efforts to contain the virus.  Headline sales fell a record 16.4% as consumers quit spending on virtually every category of goods and services.  Sales of clothing fell 79%, furniture and home furnishings fell 59%, electronics and appliances fell 61%, auto sales dropped 12.4%, and spending at restaurants and bars dropped another 30% (now down 50% over the last two months).  To illustrate the degree of slowdown, consumers spent $8.5 billion in April combined on furniture and home furnishings, electronics and appliances, and apparel. They spent more than two-and-half-times that amount on apparel alone in February. Unlike the March report, there is no silver lining from prepping evident in the April figures.  The only positive category was, intuitively, online sales which rose 8.4%.  One month into the quarter, the pace of consumption validates some very dour GDP projections for 2Q.

Manufacturing Output Expected to Halt in April Report: Industrial Production to Give First Look at Manufacturing Slowdown in 2Q: At 8:15 a.m. CT, the April industrial production report is expected to show overall output decline 12%, including an almost-15% decline in manufacturing output.

Job Openings and Consumer Confidence: Also this morning, the delayed JOLTs job openings data for the month of March is expected to show one million fewer job openings.  At 9:00 a.m. CT, the University of Michigan’s May report on consumer confidence is expected to show slightly worse confidence, not fully reflecting the degree of damage done to the consumer.  Key will be the futures expectations index given that is has remained fairly resilient thus far.


Stocks Rose Thursday Despite Millions More Filing for Unemployment Insurance: Thursday was Wednesday in reverse for the S&P 500 as market volatility continued amid persistent uncertainty around the virus’s path and re-opening of the global economy. The S&P 500 opened near its highs of the day Wednesday before falling steadily to close near its low down 1.8% after Fed Chair Powell struck a nerve with his ominous assessment of the economic outlook.

Yields Unyielding to Stock Fluctuations: That tone was reinforced early Thursday by a larger-than-expected jump in new jobless claims and strained by more strong words from President Trump on China. The president said he won’t renegotiate the trade deal and again hinted at having evidence that China failed to stop the outbreak. However, after quickly falling to its low point early, in the day, the S&P 500 reversed into a gradual climb that led it to a 1.2% recovery and a close at its daily high. Treasury yields, however, continued their flattening trend lower with the 2-year yield closing down 1.2 bps at 0.15% and 10-year yield shedding 3.1 bps to 0.62%.


Uneven Finish to Cap Down Week for Equities: A somber week for global markets is off to an uneven finish on Friday as trade tensions creep back in the frame alongside a busy day for global economic data. A broad index of equities in Asia Pacific rose 0.3% Friday, although national indexes were split between gains and losses. Economic data from China was mixed for April as industrial production recovered more than expected while retail sales slid more steeply than estimated. The 7.5% drop in retail activity followed a 15.8% plunge in March. European equities were up on the day but off their highs after the latest barb in the resurgent U.S.-China trade tensions. Germany’s economy shrank 2.2% in 1Q as expected, its worst quarter since the last recession but a smaller contraction than other major European economies.

Treasury Yields Hold Steady After Historic Retail Contraction: U.S. futures had moved modestly into positive territory but fell sharply just before 6 a.m. CT following a statement from the Commerce Department that the U.S. is “restricting Huawei’s ability to use U.S. technology and software to design and manufacture its semiconductors abroad,” in order to stop, “Huawei’s efforts to undermine U.S. export controls.” Treasury yields also made new lows on the headline. Just before April’s retail sales results, stock futures were down around 1%, the 2-year yield was down 1.0 bps, and the 10-year yield was 2.1 bps lower. Those moves were largely unchanged after the report.


Kashkari Says Americans Will Need More Support Soon: Minneapolis Fed President Kashkari said, ”I think a V-shaped recovery is off the table” and called on Congress to put more “money directly in the hands of laid-off Americans.” “We’re in this for months, a year, 18 months,” he conjectured.

Fed Reports on Covid Impact to Households: Kashkari’s sentiment lined up with statistics in a Fed report on the health of U.S. households released Thursday that showed 20% of adult workers from February lost their jobs or were furloughed in late-March or early-April as a result of the virus. While the majority expected to return to work, nearly half were “finding it difficult to get by.” The report said, “Thirty-nine percent of people working in February with a household income below $40,000 reported a job loss in March.”

Bullard Said Fed May Continue to Hold Off on Making Economic Projections: St. Louis Fed President Bullard said there is a chance that the Fed will forego releasing updated projections again in June amid the unprecedented shock to the economy.

Kaplan Doesn’t Favor Negative Rates: Dallas Fed President Kaplan expects the economy to contract as much as 30% in the second quarter and need more fiscal stimulus to help bring unemployment back down. He also said he does not favor the Fed using negative rates.

The information included herein has been obtained from sources deemed reliable, but it is not in any way guaranteed, and it, together with any opinions expressed, is subject to change at any time. Any and all details offered in this publication are preliminary and are therefore subject to change at any time. This has been prepared for general information purposes only and does not consider the specific investment objectives, financial situation and particular needs of any individual or institution. This information is, by its very nature, incomplete and specifically lacks information critical to making final investment decisions. Investors should seek financial advice as to the appropriateness of investing in any securities or investment strategies mentioned or recommended. The accuracy of the financial projections is dependent on the occurrence of future events which cannot be assured; therefore, the actual results achieved during the projection period may vary from the projections. The firm may have positions, long or short, in any or all securities mentioned. Member FINRA/SIPC.
Copyright © 2023
This is a publication of Vining-Sparks IBG, LLC
775 Ridge Lake Blvd., Memphis, TN 38120