The stimmy effect
The path to an economic recovery is becoming clearer with every new month of economic data. March retail sales jumped 9.8% on the back of the latest round of stimulus checks. Spending was higher across many categories with sporting goods, clothes, and food & beverage leading the way. Last week’s new unemployment claims also fell to 576k, which is a pandemic-low.To put this into context, the weekly unemployment claims were sitting closer to ~200k pre-COVID, had jumped to a high of 6.15m during the worst part of the pandemic, and have been stuck in the 700k-900k range for a while.
Moral of the story: It’s largely anticipated that retail sales will pull back a little in April after the stimulus boost comes off. At the same time, vaccine roll-outs and an improving employment backdrop should continue to support pretty robust consumer spending in the coming months and investors are v excited about the prospects.
Inflation is here
The consumer price index (which measures inflation from the consumer’s perspective), came in at a whopping 2.6% annual rate for the month of March. Most of this was driven by gasoline prices rising 22.5% higher (!!) compared to last year. Excluding food and energy, both of which are typically quite volatile, core CPI was up 1.6% for the year.
Moral of the story: This report, combined with last week’s producer price index report, are clearly pointing to inflation coming. Over the next few months, I’d expect several elevated inflation prints as we compare numbers to last year’s depressed prices, which will likely result in higher volatility in the stock market. But, it’s just short-term noise imo – the same things that have structurally kept inflation lower for the last decade (higher productivity from technology solutions) are still in play and should keep prices in check over the long-term.
Recovering nicely
Industrial production rebounded in March, rising 1.4% after falling 2.6% in February because of widespread outages from the severe winter weather across the south. Though we saw a rebound, the scale of the bounce-back was underwhelming compared to market expectations driven by shortages in the supply chain (for things like semiconductors) and a massive swing in temperatures. After the severe winter weather in February, we actually saw higher than average temperatures in March, resulting in a sharp 11.4% decline in utility production.
Moral of the story: Industrial production has stayed pretty resilient throughout the pandemic and is now only 3.4% lower than pre-pandemic levels. Once we move past supply chain bottlenecks, the expectation is for the sector to continue its recovery to pre-pandemic levels (and beyond).