Lost steam. Stocks fizzled on Friday with a mixed close in response to mixed economic numbers and a lack of congressional action. Consumers are still buying things, but not as much as in prior months.
N O T E W O R T H Y
Consumption-sumption, what’s your function? If I just got you humming that Saturday morning classic from Schoolhouse Rock, sorry… I couldn’t help myself. It was what came out on Friday morning that inspired the tagline, however. The US Census Bureau released its Retail Sales numbers for July, and the headline growth figure of +1.2% underwhelmed economists who were expecting a +2.1% rise. More underwhelming was the fact that the prior month saw a growth of +7.5% which was revised to an even larger jump of +8.4%. You may recall that the prior month, May, saw a jump of +18.2%. First, let’s drill down on what folks were buying last month. Looking down the list, one of the most notable pullbacks was in Motor Vehicle Parts and Dealers which fell by -1.2% after rising +9.1% in June. Sporting Goods, Hobby, Book, and Music Stores saw a big drop as well, falling -5% after gapping higher by +17.4% in June. Building Materials and Garden Equipment purchases were off by -2.9% after growing by a scant +0.8% in the prior month. Looking down the remainder of the categories, we see continued growth but at a much slower pace. Looking at Retail Sales Excluding Motor Vehicles, we get a +1.9% increase which was much closer to economists consensus estimates. Looking back on the prior months’ figures, we see what appears to be a V-shaped recovery from their April lows, spiking in May and pulling back but still growing in June. July’s figures show a continued trend of slowing growth. What is clear is that May’s spike was inspired by stimulus checks and the weekly additions to unemployment benefits which put some workers temporarily above the poverty line. In other words, the stimulus funding was spent and did its part in turning around spending. With CARES Act stimulus now run out and spent, the slowing trend is likely to continue. Though the employment situation has improved somewhat since the stimulus power was at its height in May, the overall situation remains bleak as companies continue to struggle with re-openings being pulled back and restricted in many states where virus cases have seen increases. This, as lawmakers appear to be at a stalemate in negotiations over a follow-up stimulus package. With improvements in the labor market and an uptick in consumer prices, some more conservative lawmakers argue that no additional stimulus may even be necessary. Unfortunately there is a political element to the negotiations and the political stakes are high as we roll into an important election, so we can most likely count on further delays. The bottom line is that Americans are still increasing their spending, albeit at a slower pace, and any further stimulus would certainly cement the economic turnaround.
THE MARKETS
Markets posted a mixed close on Friday after conflicting economic numbers combined with Congressional inactivity failed to push stocks to new highs. Retail spending slowed and consumer sentiment rose slightly confusing investors in the session. The S&P500 pulled back slightly by -0.02%, the Dow Jones Industrial Average advanced by +0.12%, the Russel 2000 Index slipped by -0.12%, and the Nasdaq Composite Index gave up -0.21%. Bonds pulled back and 10-year treasury yields fell by -2 basis points to 0.70%.
NXT UP
- Empire Manufacturing (Aug) is expected to be 15.0 after posting a 17.2 print last month.
- NAHB Housing Market Index (Aug) may come in at 74, up from the prior month’s 72.
- Atlanta Fed Raphael Bostic will speak today.
- We have a light economic calendar this week with additional housing numbers, regional Fed reports, the Leading Index, flash PMIs, and FOMC meeting minutes. Earnings season is winding down, but we still have some important releases in coming days. Refer to the attached economic and release calendars for details.