Update On The Consumer
Redbook same-store sales growth fell from 2.2% to 2.1% in the week of October 3rd. That’s better than the trough of this year and the decline in September, but it’s not an area we want growth to settle at. We want growth to stay in the mid-single digits which is near where it has been historically.
ShopperTrak is predicting traffic in retail stores this holiday shopping season will fall 22% to 25% because of COVID-19. You have a weak economy combined with people wanting to avoid crowds. It’s better for the long term health of the economy if people avoid crowds and shop at home. We don’t need a spike in COVID-19 cases in January just when we should be starting to see vaccines, better treatment, and more testing.
We can limit the damage this winter if the correct protocols are met. Even people who want to open up the country recognize storming retail stores in packs is a bad idea. Black Friday is going to have a lower percentage of holiday sales than usual. Super Saturday (December 19th) and Cyber Monday will be stronger than usual.
Where The Money Is Being Spent
Deloitte is predicting a 1% to 1.5% increase in sales from November to January as online sales will make up for weakness in stores. Projection is for a 30% increase in online sales. Some are more optimistic as we see about 3% overall sales growth. That depends on if there is a stimulus. President Trump tweeted against a stimulus on Tuesday, but that could just be a negotiating tactic.
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As you can see from the chart above, spending growth on specialty food and beverages is up over 50% from last year, while spending on movie theaters is down close to 100%. Movie theaters have dealt with the worst of the COVID-19 crisis because production companies don’t want to release blockbuster films until NYC and California are open. Without those big states, there is no benefit to releasing films.
Obviously, production companies need movie theaters to exist in the future, meaning it doesn’t pay to delay a film until 2021 if theaters are gone. However, they aren’t in a position to take losses just to help theaters. Some might even feel eventually films will switch to being distributed exclusively online. We’re probably a long time away from that as millions still enjoy the theaters despite the increase in streaming consumption.
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We looked at what money is being spent on. Now let’s look at who is spending it. The chart above shows travel and entertainment spending growth is the highest among Gen Z and Millennials. It’s the lowest for Baby Boomers. The older someone is, the less likely they are to spend money on travel and entertainment because of health reasons.
Millennials were more likely to lose their jobs. But apparently, their growth rate still hasn’t fallen as much as it has for boomers. Most boomers have a few underlying conditions that makes getting COVID-19 more of a deadly risk. Boomers are ages 56 to 74. High end of that range is among the most at risk from COVID-19.
Economic Recovery
Powell stated how important a stimulus is for the economy on Tuesday, but President Trump tweeted he is rejecting Pelosi’s $2.4 trillion stimulus plan. GOP offered $1.6 trillion. Some think that’s a mistake because the incumbent party should want consumers feeling good before the election.
Those were the official plans, but behind closed doors, it was reported that the GOP stated it couldn’t support anything with a 2 in front of it. GOP was at about $1.9 trillion. Obviously, the Dems wouldn’t move much below their offer, so no deal was made.
We’re getting so close to the election, that whether a plan passes before or after it doesn’t really matter to the economy. Most investors think a plan will pass eventually which is why the stocks that benefit the most from a stimulus actually outperformed on Tuesday after it was announced a stimulus wouldn’t occur.
That was a real shocker because almost no one thought tech would decline the most after failed stimulus negotiations. It doesn’t make sense at all if you actually think no stimulus is coming. Both parties want a stimulus and both presidential candidates support one.
After the election, we should see another stimulus. It’s even possible President Trump is just trying to negotiate in which case we could see one pass this month. He doesn’t like when the stock market falls. The stock market’s response could motivate the GOP to do a deal so we get a rally into the election. Of course, the stock market isn’t the only factor voters consider as about half of Americans don’t own stocks.
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Stimulus determines the near term direction of the economy. As you can see from the chart above, the JefData economic index accelerated in the past few weeks. NY Fed’s weekly economic index also improved. If a stimulus is passed and better COVID-19 news comes out, an economic acceleration won’t be in doubt. Without it, the economy is less predictable.
COVID-19 Update
Tuesday data on COVID-19 was mixed. There were only 815,372 tests which brought the 7-day moving average down. There were only 38,696 new cases which is low for a Tuesday. Lately, we’ve been seeing the peak in cases occur on Wednesday instead of Tuesday, but usually, Tuesday is pretty high.
Deaths were only 635 which put the 7-day average at 687 which is very low. The bad news is hospitalizations jumped to 31,346 which means deaths will stop falling within the next week or two.
The good news is the Chief Scientific Advisor for Operation Warp Speed stated that he feels comfortable that in the next month or two there will be one or two efficacious vaccines that will deliver 2 doses of vaccines to 30 million people in November to December.
Keep in mind, he is a Democrat. He’s not saying this to help Donald Trump win the election. There really will be better treatment, vaccines, and more testing by the end of the year. That might be why the reopening stocks outperformed on Tuesday in spite of the bad stimulus news.
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