Nobody’s shopping for a new fall wardrobe
Retail sales increased for the third straight month in August but the momentum of recovery definitely seems to be losing steam. Sales increased 0.6% overall with spending at bars and restaurants seeing a sizeable boost – up 4.7% in the month. Even though sales have been improving in many categories, sales at restaurants are still down about 15% compared to last year and sales at clothing stores are down 20% compared to last year. All summer I think I maybe wore 6 real people outfits.
Moral of the story: Retail sales are a major component of consumer spending, which accounts for about 2/3 of the US economy, and are 2% higher now than they were in February, pre-pandemic. This level of recovery in retail sales, given the level of unemployment, is definitely a bit of a head-scratcher, but can largely be attributed to the heightened level of unemployment benefits being distributed, even though they were cut in half at the end of July.
The Fed announced Wednesday it plans to keep interest rates effectively at 0% until the labor market is back to “maximum employment” and inflation has increased to 2% and “is on track to moderately exceed 2% for some time.” Based on the Fed’s forecast for economic conditions, this doesn’t seem likely until 2023 at the earliest.
Moral of the story: The markets initially reacted positively to the Fed’s statement, but then rolled over after noticing the devil in the details of the Fed’s future guidance, which was quite dovish.
Three years to go
The number of new jobless claims fell last week for the first time in five weeks but still remain too high (1.4m if you include all state and federal programs). Unfortunately, continuing claims for state and federal programs increased slightly to a grand total of 29.8m. To put this number into perspective, less than 2m people were receiving unemployment checks pre-COVID.
Moral of the story: Even though we’ve recovered almost half the jobs lost during the pandemic, it’s going to be v difficult to bring back the rest. Many small businesses have already closed and some big industries (i.e. airlines) are still hanging on by a flimsy thread. The Fed is expecting it will take over three years to bring unemployment down to pre-COVID levels.