Another 2.98 Million People Filed for Initial Jobless Claims… That brings the seven-week total to 36 million people who filed a claim since the shutdown began.
What it means—It’s great to see the number fall under 3 million, but it wasn’t enough to show that we’ve turned the corner on unemployment in a meaningful way. The estimates for May unemployment in the U.S. run from 19% to 25%, the latter would be the highest unemployment ever recorded by far.
Many people are pointing out that unemployment reached 25% during the Great Depression, but that number was an estimate, as we didn’t survey workers during the 1930s. The U.S. Bureau of Labor Statistics tweaks the unemployment numbers in many ways to make them look a little better than the actual count. The data excludes people who are out of work and who haven’t searched for a job recently. John Williams of Shadowstats.com estimates today’s unemployment to be more than 30%.
Stock valuations continue higher disconnected from the economy… Multiple well-known billionaires, Tepper, Druckenmiller and Cuban expressed concerns that markets do not reflect economic reality.
What it means—After the market closed Friday when investors typically quit watching news, the Fed released a statement that looks a lot like an effort to say “I told you so” at the next correction.
“Asset prices remain vulnerable to significant declines should the pandemic worsen, the economic fallout prove more adverse, or financial system strains reemerge. The improvement in asset markets since their troughs reflects expectations for a rebound in economic activity as well as the extraordinary policy actions taken. Uncertainty remains high and markets remain volatile relative to historical norms, suggesting the possibility of further price declines should developments prove more adverse than expected. Price declines could be especially pronounced in areas where valuations have remained high.” We have been warned.
Small Business Optimism Falls to 90.9, Better Than Expected… The National Federation of Independent Business (NFIB) Optimism Index dropped from 96.4 to 90.9, higher than the expected level of 84.8.
What it means—Small business owners know things will be very rough in the short term, but they’re obviously hopeful about the recovery. Counting on pent-up demand to fuel a strong bounce as states open up in the second half of the year, business owners are looking past their current woes. That’s a good thing, because sales expectations for the next six months fell 30 points, to -42, the lowest reading in the 46-year history of the index.
The business owners could be in for a big disappointment. Government checks and unemployment benefits can ease some pain, but they don’t replace jobs. If unemployment remains elevated through 2021, the economy will not bounce back quickly.
Consumer Prices Fall 0.8% in April After Dropping 0.4% in March… The Consumer Price Index (CPI) reflected a 20% drop in gas prices and a record drop in airfare.
What it means—Zero. The annual change in consumer prices, or inflation, dropped to 0.3%, and looks like it’s headed to zero. The annual change in March was 1.5%, already down from 2.5% in January. Some prices did increase, such as those for chicken (5.8%) and beef (3.7%), and food at home in general increased by 2.6%. Interestingly, rent and home ownership moved a bit higher, up 0.2%, but don’t expect that to last.
Core inflation, not including food and energy, fell by 0.4%, notching the first back-to-back declines in 37 years, but only falling from 2.1% to 1.4%. Falling inflation brings up the possibility of deflation, which is what the Federal Reserve is determined to fight. If consumers believe they will pay lower prices in the future, they might hold off on purchases today, creating a self-fulfilling prophecy that would be very hard on the economy, something the Fed cannot alter.
More deflationary warnings came from the BLS in its Import and Export Prices report. The data measures the prices of nonmilitary goods and services traded between the U.S. and the rest of the world. The year over year change in imports and exports are -6.8% and -7.0% respectively.
April Producer Price Index Down 1.3%… Wholesaler costs fell dramatically last month, matching declines in demand.
What it means—In April, wholesalers paid less for gasoline, corn, and raw chemical inputs, among other things, as final demand dropped like a rock, showing that waning demand is working its way up the supply chain. Beef and liquor bucked the overall trend by moving higher, but those are isolated data points. Few industries and few points in the supply chain are getting through these times unscathed.
April Retail Sales Fell 16.4%, Much More Than Expected… After dropping more than 8% in March, retail sales fell double digits in April, collapsing 21.6% over last year.
What it means—To be fair, no one really knew what to expect, other than a really ugly number.
The pain was wide and deep:
motor vehicle sales down 13%,
furniture sales down 58.7%,
electronics down 60.6%,
clothing off an amazing 78.8%.
One bright spot was online sales which were up 8.4% last month. We already knew that Amazon was killing it during the shutdown.
This is where geometrically linked returns cause a problem. With clothing down almost 80%, it will take a 400% rise in sales to get back to where we were just a month ago. On an annual basis, that particular category is even worse, down 89.3% from April of 2019. It will take a 900% boost in sales to get back to where we were last year. It could happen, but with more than 30 million people losing their jobs. The probability is low.
April Industrial Production Dropped 11.2% and Capacity Utilization Fell to 64.9%… Industrial production set a record for the steepest monthly drop in the 101-year history of the measure, and capacity utilization set a record for the lowest rate since that measure began in 1967.
What it means—There’s not much to add here. The numbers reflect that we shut down a big chunk of our infrastructure over the last six weeks. Like jobless claims and retail sales, it’s worth noting the magnitude of the changes because it highlights the size of the task in front of us to get back to some semblance of normal. It will take much longer than many people seem to think. The “V” recovery is probably tipping over to Long.
Data supplied by HS Dent Research
“When the facts change, I change my mind.
What do you do, sir?” ~ John Maynard Keynes
Our plan is “the plan will change.”
What is your plan?
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