Retail Sales Update: December 2020 Insights

Retail Sales Update: December 2020 Insights

Table of Contents:

1. Introduction
2. Retail Sales in the US 2.1 Weakness in Retail Sales 2.2 Impact on the US Economy
3. Control Group Analysis 3.1 Growth Projections 3.2 Negative Trends
4. Consumer Outlook 4.1 Importance of Consumer Spending 4.2 November Bouncebacks
5. PMI and Economic Indicators 5.1 Manufacturing Sector 5.2 Service Sector 5.3 Composite Index
6. Business Inventories 6.1 Impact on Imports 6.2 Normalization of Inventory Levels
7. Housing Index and FOMC 7.1 Stability in the Housing Market 7.2 Monetary Stimulus Measures
8. Capacity Utilization and Industrial Production 8.1 Slowdown in Industrial Production 8.2 Challenges in Capacity Utilization
9. Manufacturing Sector Contraction 9.1 Three-Month Average Analysis 9.2 Impact on Forward Guidance
10. Implications for Imports and Exports 10.1 Slowdown in Imports 10.2 Concerns about Exports
11. IPO Frenzy and Negative Earnings 11.1 Record Number of IPOs 11.2 Impact of Negative Earnings
12. Loose Financial Conditions 12.1 Influence on Bank Lending 12.2 Rise in Corporate Bond Issuance
13. Zombie Companies and Perpetual Debt 13.1 Growth of Zombie Companies 13.2 Global Debt Concerns
14. Reflation Trade and Inflationary Pressures 14.1 Inflation in Equity and Bond Markets 14.2 Impact on Commodity Markets
15. Future Outlook and Concerns 15.1 Dollar Strength and Market Impact 15.2 Economic Concerns for 2021

Article:

Retail Sales in the US: A Closer Look at Economic Data

The state of retail sales in the US has become a matter of concern as it points towards a weakening trend. Over the past couple of months, retail sales have turned negative, missing estimates and indicating a decline in consumer spending. This is of particular significance as the US economy relies heavily on consumer-driven growth, with consumer spending contributing to 70 to 75 percent of the GDP. The latest data reveals a decline of 1.1 percent in retail sales month over month, with the control group, which was expected to Show a growth of 0.2 percent, registering a decline of 0.5 percent. These figures highlight the underlying pressure faced by consumers and the impact it has on their buying behavior, especially during the crucial holiday season.

While there have been some positive indicators in the market, such as an uptick in unemployment expectations and a surprise upside in the manufacturing sector's Purchasing Managers' Index (PMI), the overall picture remains a cause for concern. Business inventories have been steadily increasing, leading to a normalization of inventory levels and putting pressure on overall imports. This, combined with a slight pullback in the housing market and persistently disappointing job numbers, adds to the uncertainty surrounding economic recovery.

The liquidity in the market continues to be abundant, as the Federal Reserve remains committed to ongoing bond purchases, with $80 billion allocated for bonds and an additional $40 billion for mortgage-backed securities each month. This measures a total of $120 billion in monthly purchases, emphasizing the determination to provide strong monetary support. However, it is becoming increasingly evident that fiscal measures need to be implemented to complement the monetary intervention. A likely stimulus Package of around $900 to $925 billion is expected to provide additional support to the economy.

Analyzing economic indicators reveals a mixed picture. While the New York Fed Weekly Economic Indicator experienced a slight pullback, the industrial production year-over-year change remains below pre-pandemic levels. The manufacturing sector still shows signs of contraction, with 66 percent of manufacturing sectors falling into negative territory in November. This presents a challenge for forward guidance and indicates a lopsided recovery.

Another factor contributing to the uncertainty is the import market, which has been relatively stagnant. The largest importing nation, the US, has experienced a decline in imports since 2018, which has put pressure on the global market. The slowdown in purchasing, along with business inventory normalization, has slowed down the flow of goods into US ports. This has consequences for the export market, as it can only sustain itself for a limited time before inventories need to be restored.

The Current market Scenario has seen a surge in IPO (Initial Public Offering) activity. With easy financial conditions and loose capital availability, companies are taking AdVantage of the favorable market sentiment to go public. However, it is important to note that a significant proportion of these IPOs have negative earnings. This raises concerns about the sustainability and profitability of these companies in the long term.

The loose financial conditions, fueled by extensive monetary stimulus, have led to an increase in lending activity by banks. Large, middle-market, and small firms are benefiting from easier lending standards and increased capital availability. However, it is worth considering that excluding PPP (Paycheck Protection Program) loans, US banks have shrunk corporate lending. This suggests that while lending conditions may be improving, the impact on the broader market is yet to be fully realized.

The growing presence of zombie companies, which are unable to generate positive earnings, poses a significant risk to the overall economy. In addition, the continuous rise in global debt levels raises concerns about the sustainability and stability of the financial system. Despite these challenges, IPOs Continue to soar, driven by loose financial conditions and the abundance of available capital.

The concept of a reflation trade has gained traction, but questions arise regarding what needs to be reflated. The equity and bond markets already exhibit inflationary pressures, while the commodity markets are catching up. The trajectory of the US dollar will play a crucial role in shaping market dynamics, as a strong dollar can have significant implications for various sectors. As the year comes to a close and we enter 2021, economic uncertainties remain, and concerns persist regarding the sustainability of the recovery.