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Tags: Coronavirus | retail | sales | covid | virus | pandemic | economy

Massive Job Layoffs Could Hit by Year's End If Virus Continues to Spike

Massive Job Layoffs Could Hit by Year's End If Virus Continues to Spike
(Selezenj/Dreamstime)

Joel Naroff By Thursday, 16 July 2020 11:23 AM Current | Bio | Archive

INDICATOR: June Retail Sales, July Home Builders Index and Philadelphia Fed Manufacturing Index and Weekly Jobless Claims

KEY DATA: Sales: +7.5%; Ex-Vehicles and Gasoline: +6.7%/ NAHB: +14 points/ Phila. Fed: -3.4 points; Expectations: -30.3 points/ Claims: -10,000; Recipients: -422,000

IN A NUTSHELL: “Another day of Covid-19 math as retail sales skyrocket.”

WHAT IT MEANS: Consumers went crazy in June as retail sales soared. OK, maybe not. Yes, total demand soared, but let’s understand, these data are the result of many stores that were largely closed having some opportunity to actually sell something. So we got some outsized percentage increases, such as clothing up 105%, electronics and appliances up 37%, furniture rising 32%, sporting goods increasing 26% and restaurants posting a 20% gain. There was also an 8% jump in vehicle demand and a 15% rise in gasoline sales (prices were up). Does anyone think those gains will be repeated? The increase was greater than expected but as I noted yesterday, we (economists) really don’t have a great handle on the magnitude of changes under the current circumstances. We knew the rise would be large, but how large was anyone’s guess.

One sector where we can say that conditions have clearly improved and are beginning to get back to normal levels is housing. The National Association of Home Builders’ index jumped again in July and is back to where it was before the virus hit. Housing has been the first sector to move toward recovery and given all the jobs it creates directly and through the demand for all the products that go into building a house, that is good news for future economic growth.

The Philadelphia Fed’s July Manufacturing index slipped in early July, but the details were mixed. Once again, this is a diffusion index, so you need to look at the components more than the headline numbers. On the negative side, a larger percentage of respondents said that business activity declined in July compared to June. However, employment levels started to rise and order growth continued to recover. Unfortunately, optimism cratered, possibly due to the virus resurgence in so many states.

Finally, we have the jobless claims numbers. Once again, the number of new filers declined, but the drop was minimal. Indeed, the fall off was similar to pre-virus times, when levels were in the 225,000-range than now, with claims still at 1.3 million. There was a sharp reduction in people receiving unemployment checks, but the number remains above seventeen million. Yes, progress is being made, but only glacially.

IMPLICATIONS: As expected, the June retail sales rebound was awesome. Unfortunately, that was June and now we are now in July. First of all, the biggest gains are likely behind us, especially since so many states have paused or slowed the reopening process. Consider restaurants. If, as believed, capacity limitations are being met, there is little room for demand to rise unless they can seat more customers. Second, people have to become more comfortable with going into stores. That is problematic given the virus resurgence in so many places and the incredibly dumb battles going on about masks. Talk about “in your face” attitudes. The unwillingness to wear a mask can only cause people who worry about the contracting the virus to become even more cautious about going into stores. That can only hurt the recovery. Clearly, our wonderful federal politicians have failed us once again and left dealing with this issue up to state and local governments as well as private companies. That exposes companies to backlashes they should not have to face as they try to keep customers and employees safe and provide a welcoming shopping experience. The only way the economy will keep recovering is if everyone makes sacrifices and too many seem to think others should make the sacrifices. The results are obvious, as the virus is resurging across the nation and the drive to reopen has been slowed in many places and reversed in some. If conditions continue to deteriorate rather than improve, as appears to be the case, the July and August sales and labor market data could turn out to be disappointing. I expect weekly claims to start rising and that could lead to an increase in the unemployment rate, if not in July then possibly August. And the data are likely underestimating the true state of the labor market. Firms are starting to warn there could be major layoffs in the months to come. A better way to read that is if conditions don’t improve markedly, layoffs will happen. They may not occur until late in the year, but they are coming.

Joel L. Naroff is the president and founder of Naroff Economic Advisors, a strategic economic consulting firm.
 

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JoelNaroff
As expected, the June retail sales rebound was awesome. Unfortunately, that was June and now we are now in July. First of all, the biggest gains are likely behind us, especially since so many states have paused or slowed the reopening process.
retail, sales, covid, virus, pandemic, economy
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2020-23-16
Thursday, 16 July 2020 11:23 AM
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