Retail Sales Quick Analysis: Core of the core plunges by triple the estimates, third blow to markets
|- US retail sales fell by 16.4%, double the worst on record.
- Escalating Sino-American tensions have already muddied the mood.
- The Federal Reserve's refusal to set negative rates – which makes sense – is another downer.
Expect low, go even lower – US Retail Sales were projected to fall by 12% in April after sliding by 8.3% in March, but the outcome was -16.4%. Moreover, the closely watched Control Group – which is critical to growth calculations – plunged by 15.3%. That is triple the estimate.
Will we see a bounce? It is hard to go further down from the bottom, especially for businesses that are shut down. However, the recovery will likely be shallow. Even when states fully reopen for business – customers will likely shy away from patronizing restaurants and visiting apparel outlets.
Moreover, some 36 million Americans have lost their jobs – and even those that have since found a new one will likely not feel confident to go on a shopping spree. The US economy is centered on consumption, around 70% before the crisis. The significant hit, as seen here, does not bode well for other sectors as well.
For stock markets, the collapse in retail sales joins two other downers:
First, Sino-American relations have continued deteriorating. Washington has slapped further limitations on Huawei, the Chinese telecom giant. The Global Times, an English language mouthpiece of Beijing, warned about investigating Apple. President Donald Trump raised a trial balloon of "cutting ties" with China. A drop in global trade is detrimental to the economy.
The second equity market downer is the refusal of the central bank to set negative interest rates. Jerome Powell, Chairman of the Federal Reserve, said the bank is "not looking" at this option. His stance makes sense as Japan and the eurozone failed to boost growth and inflation with such policies. Nevertheless, going negative would help boost markets – at least outside the banking sector.
Overall, dismal retail sales complete a one-two-three punch.
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