The shocking economic figures are now coming to the upside. Last week, the Commerce Department reported that retail sales jumped 17.7% month-over-month in May, a new record that was well ahead of expectations. Although the cumulative total including March and April was still negative, the pace of recovery appears to be in a V-shaped pattern, at least thus far.
Stimulus checks were noticeably impactful for retailers. And although the trend is encouraging, the dispersion in winners and losers still leaves a trail of economic destruction and a prolonged recovery for certain segments of the economy. Even so, the U.S. consumer has once again proven to be resilient, despite these extreme times of uncertainty.
On the employment front, weekly jobless claims continue to stay elevated with over 1.5 million Americans filing for benefits in the week ended June 12th. Continuing claims also remained high, declining only marginally to 20.5 million from 20.6 million the week prior. Overall, continuing claims are down about 4 million from peak levels in May1.
The Leading economic indicators (LEI) index increased 2.8% in May following declines of 7.5% and 6.1% in March and April, respectively. About 2/3 of that gain is due to the improvement in unemployment insurance claims, with some minor contributions from housing permits and the stock market2. New orders in manufacturing and consumers’ outlooks continued to detract.
Although the stock market is not the most important weighting in the leading economic indicator’s index, it is the most common yardstick for gauging the overall trend. Note that this is a leading indicator, not a lagging indicator which can be confusing for investors who try and match the terrible recent news to prevailing stock prices.
The record level of Fed liquidity, along with stimulus checks, has undoubtedly made things better than they otherwise would have been, for both the economy and the stock market. But if there is a real risk of a second wave, the stock market will not remain forever immune to that. For now, this risk continues to cloud investor and consumer confidence, while the stock market appears to be forecasting this as more fear than reality.
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