The benefits provided by recent stimulus packages seem to be fading. U.S. retail sales dipped 1.1% last month and have now declined in two of the last three months [Figure 1]. Declines in motor vehicle and online purchases led the fall. Restaurant sales grew 1.7% in July and continue to rebound. Federal Reserve minutes indicated the economy looks strong enough for the central bank to taper bond purchases in coming months.
Key Points for the Week
- The S&P 500 doubled its pandemic low after just 354 trading days.
- U.S. retail sales fell 1.1% last month, lagging expectations for a lesser decline of 0.3%.
- Chinese retail sales also missed expectations, rising 8.5% over the last year.
China’s economy seems to be slowing under the pressure of resurgent COVID cases and increased costs. Chinese retail sales rose 8.5% but missed economists’ expectations for 10.5% growth. Industrial production also missed expectations, rising 6.4%.
The S&P 500, without dividends, doubled from the COVID lows in March of last year, based on Monday’s close. Typically, the market takes 1,000 trading days to double from a low. The bottom on March 23, 2020, was surpassed in only 354 trading days.
After doubling the COVID low on Monday, stocks retreated. The S&P 500 shed 0.5%. Global stocks fared worse as the MSCI ACWI sagged 1.8%. The Bloomberg BarCap Aggregate Bond Index added 0.2%. U.S. home sales and core PCE inflation head the list of key economic data reporting this week.
Bouncing Back a Little Slower
The U.S. economy continues to make a slightly bumpy transition from COVID-led stimulus to a self-sustained reopening. The bumpiness popped up again this week as retail sales missed expectations of -0.3% and instead declined 1.1% [Figure 1].
The underlying data was even more bumpy. On the positive side, restaurants added another 1.7% in growth last month and sales have risen 38.4% during the last year. Gas station sales benefited from higher prices, and sales rose 3.5% in July. Gas sales have increased 37.5% during the last year. Negative contributors were led by motor vehicle and parts dealers, which experienced a 3.9% decline as the microchip shortage continues to plague auto dealers.
Figure 2 shows concerns about the decline in retail sales may be overdone. The top dark line shows retail sales climbed steadily until the pandemic started. After a sharp decline, sales have rebounded and are above the trend in earlier years. So, even though sales are falling, the absolute level implies the economy continues to make up for transactions lost during the pandemic. (Figure 2).
Figure 2 also shows some other important trends. The second line from the top excludes sales of motor vehicles and parts. The decline in sales was much smaller if the industry most affected by the microchip shortage is excluded. As additional chips are manufactured, vehicle buyers are likely to make up for missed purchases.
Sales data will also be bumpy as consumers remain worried about the risks of venturing out. The Delta variant is likely to pressure sales in August. Increased social distancing will put additional pressure on sales at the same time as efforts are made to ramp up new car production.
As long as retail sales growth continues to be above the previous trend, our expectation is the market will perceive the economic recovery to be on solid ground. Some economists seem to have high expectations for the economic support provided millions of Americans to be self-reinforcing and kick growth to high levels. Our expectation was the economy would benefit from the stimulus, but those gains are likely to slow as stimulus support gets more distant each day. The priority remains making it safe for consumers to venture out and for workers to return to work.
About Christina Hester Snyder
Christina is an associate partner and wealth advisor at Jacob William Advisory with a storied 20-plus year career in financial services. Christina is known for her commitment to her clients and is dedicated to helping them alleviate their financial fears through education and planning that goes far beyond investments. She believes in a comprehensive approach that addresses all facets of planning, including wealth transfer, insurance, taxes, investments, estate and trust planning, retirement, risk management, and business planning. Christina graduated from the University of Baltimore with a Bachelor of Science in Business with an emphasis in international business. She also holds many professional designations, including CERTIFIED FINANCIAL PLANNER™ (CFP®), Chartered Financial Consultant® (ChFC®), Retirement Income Certified Professional® (RIPC®), and Certified IRA Services Professional (CISP™). She is an active member of her community and is involved in many professional and nonprofit groups, including acting as the president of the Maryland chapter of Women in Insurance & Financial Services and serving on the board of a nonprofit that helps Maryland families with financial hardships. To learn more about Christina, please click here.
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