Whither goes the economy?
Weekly Bond Commentary
Economic indicators should be viewed not as points, but as vectors—that is, with direction in addition to a present value. This is not always easy, but important now in the aftermath of the coronavirus shutdown, and the general level of uncertainty pervading businesses now. Of course, moving averages can provide this context, but the news cycle and the markets tend to react to the newest numbers.
Examining retail sales benefits from this approach and throws water on some hot numbers. In September, they rose for the fifth consecutive month with nominal month-over-month gain of 1.9%, compared with gains of 1.1% in July and 0.6% in August. But these figures are significantly down from gains of 18.3% in May and 8.6% in June, which themselves were elevated because of the plunge in March and April. While auto and housing purchases again were strong, will they be sustainable? The same question can be asked for sporting goods and even clothing.
One winner during the pandemic has been, of course, e-commerce, and that should remain the case throughout the year. But without another stimulus package, people might be putting more money aside for bills and payments, putting reins on Rudolph ahead of holiday shopping.
The labor market remains the poster child for questionable data. The Department of Labor reported that initial jobless claims increased the week ending Oct. 10, rising 53,000 to reach 898,000, putting the 4-week moving average at 866,250, an increase of 8,000. These are figures that suggest the recovery might be stalling. Counter arguments are that continuing unemployment claims continue to drop, declining from their peak at nearly 25 million on May 9 to last week’s 10 million, and that the unemployment rate fell to 7.9% in September from 14.7% in April. The hope is that the latter data will win out, especially after the volatility of the election passes.