There Will Be No Second Wave



  • This is a weekly series focused on analyzing the previous week’s economic data releases.
  • The objective is to concentrate on leading indicators of economic activity to determine whether the economy is strengthening or weakening, and the rate of inflation is increasing or decreasing.
  • This week we examine weekly unemployment claims, retail sales, industrial production and housing starts.

Unemployment Claims

Weekly claims were 200,000 higher than expected last week at 1.57 million, and if we include the self-employed receiving Pandemic Unemployment Assistance, the number increases to 2.2 million. That is virtually unchanged from the week before. Notable is the fact that the number of workers applying for Pandemic Unemployment Assistance rose to 760,000, bringing the total close to ten million.

The greater concern is that those continuing to receive unemployment benefits is not declining, despite the 2.5 million that returned to work, based on the most recent jobs report. Jobs are being lost at nearly the same rate that the temporarily unemployed are returning to work. If we include all assistance programs, continuing claims are 29.1 million as of May 30, which is down from 29.5 the week before. This does not reflect a V-shaped recovery.

Retail Sales

Retail sales bounced back sharply in May, rising 17.7%, which was a record number. Yet it follows record declines of 14.7% in April and 8.2% in March, resulting in year-over-year sales still down 6.1%. The rebound should have been expected, given the reopening of most state economies, several of which now look to have been extremely premature. There was huge pent-up demand for goods and services after weeks of shutdowns, and many consumers were flush with found money from the stimulus checks.

Those categories realizing the greatest increase in sales were the same ones that suffered the greatest decrease in sales during the shutdown. They include clothing and accessories, furniture and home furnishings, and motor vehicles and parts. The improvement in retail sales should wane in the months ahead after stimulus checks have been spent and enhanced unemployment benefits end. It will take many months, if not a year, for retail sales to increase on an annual basis again.

Industrial Production

Industrial production rose 1.4% in May, which stops the bleeding from the 12.5% decline in April, but it remains down 15.3% from a year ago. The utilization rate rose slightly to 64.8%, but that is 15% below its average. The entire increase was a result of auto manufacturing output. This doesn’t look like a V-shaped recovery, but more like a falling knife.

Housing Starts

New home construction rose 4.3% in May to an annual rate of 974,000, which was well below estimates for a 1.13 million rate. Still, this is a step in the right direction, aided by the economic reopening and record low mortgage rates. On the brighter side, permits to build new homes rose 14.4% to 1.22 million, which bodes well for a recovery in the sector moving forward.


The greatest risk to our economic recovery was that a second wave of coronavirus would hit us in the fall, forcing states to shut down a second time to contain it. That is no longer a risk, because a second wave is out of the question. The first wave never ended. Despite the epicenter of the pandemic being fully contained in New York, the seven-day average of new cases is now on the rise nationwide. This is due to the premature openings in states like Florida, Texas, Arizona and the Carolinas.

This surely won’t stop the younger crowd from crowding into bars and restaurants or partying on the beaches, but it will force the older crowd to curtail their activities, and they are the ones with the money. For an economy that is 70% dependent on consumer spending, that is a death knell.

To that point, Bloomberg recently pointed out that the richest quarter of Americans cut their spending the most during the pandemic.

This is not only because the richest 25% do most of the spending, because they also reduced it by a much larger percentage. The wealthy have cut back on credit card spending by 17%, while middle income cut back 10% and lower income just 4%. Therefore, so long as the coronavirus continues to rage on, the only way we will see greater improvement in spending will be to have a vaccine and treatment that restores confidence in this demographic. Based on the seven-day case count, we are moving in the wrong direction.

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Source: Seeking Alpha

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