While the equity markets have been trying to look past the current economic numbers and focus on reopenings, and the hopes of better times to come, we did get retail sales numbers this morning and like most of the other April reports it paints a gruesome picture. Given the consumption-focused nature of our economy it pays, however, to see how part of that consumption fared last month. Overall sales were down –16.4%, worse than the –12.0% expectation and easily the worst monthly decline in the 30-year history of the series. The only month approaching the April drop was March’s –8.4% decline. Prior to the last two months the steepest drop was a –3.8% decline in October 2008. With limited reopenings occurring in many states it’s likely the April numbers will represent the bottom, but it still points to a staggeringly weak second quarter GDP. Bloomberg consensus has second quarter GDP at –27.5% annualized with consumer spending down –22.8%. Today’s ugly retail sales numbers could well worsen those GDP projections.
Going hand-in-glove with consumer spending is the sentiment of said consumer and later this morning the University of Michigan Consumer Sentiment preliminary reading for May will be released, and it’s expected to show a further decline form April but the rate of decline is expected to slow. The April sentiment reading was 71.8, the lowest since early 2012, while the May expectation is for a 68.0 print. The low reading from the last recession was 55.3 in November 2008. If sentiment can hold above those previous lows in the coming months it could provide a basis for thinking the consumer may weather the storm better than is currently expected. The fact that so many workers have been furloughed versus outright terminations is probably holding sentiment above Great Recession levels, but if many of those furloughed jobs don’t return in the coming months sentiment could take another leg lower which will spell trouble for a rebound in spending and in GDP itself.
Consumer Confidence Holding Above Prior Recessions
Another metric to view consumer confidence is the Conference Board’s Current Conditions reading in their monthly look at consumer confidence minus the University of Michigan’s Present Situation reading. As we mentioned in the prior section, it looks, at least tentatively, that sentiment, while having deteriorated, may hold above the levels of prior recessions and that is indicated as well in the graph below. As we’ve surmised, the large number of workers furloughed versus fired may be helping sentiment this time versus past recessions. Whatever the reason, for those expecting a strong bounce these confidence readings need to hold.
Gap Between Jobless Claims & Continuing Claims Grows
One of the observations in the jobless claims series in the last month has been the growing gap between the total initial claims (when a claim is filed) and continuing claims (when it’s accepted). Ineligibility of claims, seasonal adjustments, backlogs and individuals filing repeated claims account for much of the gap. While initial claims tend to overstate jobless numbers, continuing claims tend to understate it. Individuals filing multiple times in frustration over lengthy processing delays is probably the biggest reason for the gulf between the two metrics. One of the biggest reasons for the delayed processing is the CARES Act expanded eligibility for many workers and state systems have been slow to adjust. In any event, look to the continuing claims number for a cleaner, if understated, read on the total number of jobless. It currently stands at 22.8 million.
|Treasury Curve||Today||Chg Last Wk.||LIBOR Rates||Today||Chg Last Wk.||FF/Prime||Rate||Swap Rates||Rate|
|3 Month||0.11%||+0.03%||1 Mo LIBOR||0.18%||-0.02%||FF Target Rate||0.00%-0.25%||3 Year||0.241%|
|6 Month||0.14%||+0.04%||2 Mo LIBOR||0.39%||-0.04%||Prime Rate||3.25%||5 Year||0.319%|
|2 Year||0.14%||-0.02%||6 Mo LIBOR||0.68%||-0.01%||IOER||0.10%||10 Year||0.579%|
|10 Year||0.59%||-0.10%||12 Mo LIBOR||0.77%||-0.01%||SOFR||0.02%|