Ready or not, here it comes

The heart of the economy 

Small businesses are a critical part of the US economy and the impact of the COVID-19 crisis on these businesses is unfortunately well-known. The National Federation of Independent Business measures optimism among small businesses, which increased for the second straight month in June and came in at the highest level since February. The caveat to this information is that it doesn’t completely capture the increasing case counts that caused states to bring back restrictions toward the end of the month. On the flipside, states that were impacted most acutely at the beginning (NY, NJ, PA) have started slowly reopening.

Moral of the story: Over 99% of America’s businesses are considered to be small businesses and nearly half of the population works for these small businesses. Many small businesses are figuring out how to operate within local and state restrictions where possible, but the more these businesses fail, the harder this recovery is going to be. In case you’re looking for an excuse for take-out or a coffee or an ice cream, get out and support your neighborhood spots! 

False positive 

Retail sales posted a solid 7.5% gain in June (on the back of an 18.2% increase in May), handily beating expectations. Even then, retail sales aren’t near pre-COVID levels. A big part of the recovery has actually been auto sales because of the ultra-low financing rates rn. If you exclude the impact of gas and autos, retail sales still increased 6.7% for the month – bars and restaurants saw a whopping 20% increase in sales as many states started reopening.

Moral of the story: Strong retail sales data seem like old news at this point given rising cases in many states that have mandated shutdowns, again. Elevated federal unemployment benefits run out at the end of this month and a rude awakening seems likely on the other side – insanely high unemployment that’s going to flow into economic activity in a much more meaningful way. 

Everyone’s a food blogger these days

Prices for consumer goods increased for the first time in four months in June and about half of that was from gas prices increasing 12.3%. Even with that massive increase, gas prices are still about 23% lower than this time last year. Prices for groceries continue to increase as limited capacity at restaurants is forcing consumers to cook more at home. Grocery prices are 5.6% higher than last year, which is the highest price increase we’ve seen since 2011. At the rate at which I’ve seen homemade breads on Instagram, the inflation on yeast prices has to be pretty extraordinary.

Moral of the story: Inflation poses a small threat to the economy in the near term. But given the amount of money being pumped into the economy by the government and Fed, especially the stimulus that’s going straight into consumers’ pockets (vs in prior downturns it’s gone to banks or other larger institutions), it’s difficult to think of an environment in which inflation doesn’t make an appearance as some point through the recovery. 

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