The U.S. Week Ahead (Apr 6-10): Consumers’ Patience Under Close Watch

While several economic updates are set for the week ahead, market participants will likely be focused on the rapidly deteriorating health of the labor market, as well as souring consumer sentiment.

A recent wave of mass closings and newly implemented restrictions in the leisure, hospitality and broader service sectors has spurred droves of workers to the unemployment lines.

The U.S. Department of Labor (DOL) noted that the advance figure for seasonally adjusted initial claims in the week ending March 28 nearly doubled from the prior week to almost 6.65m due to impacts from the COVID-19 virus.

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The past two week’s figures have marked historic highs, far surpassing the previous record of 695k set in October 1982, while the four-week moving average for the series soared 327.25k week-over-week to roughly 2.05m.

The DOL said that nearly every state providing comments cited they continued to identify increases “related to the services industries broadly, again led by accommodation and food services.” However, a toll has also been taken a long list of other businesses, including health care and social assistance, manufacturing, the retail and wholesale trade and construction.

California (878,727) and New York (366,403) appear among the states suffering the largest inclines in unemployment benefits, with increases of 692,394 and 286,404, respectively. Unsurprisingly, these states, along with New Jersey, are also listed as housing the most confirmed cases of COVID-19 within the U.S., according to the Center for Systems Science and Engineering (CSSE) at Johns Hopkins University.

To date, nearly 1.04m cases of the novel coronavirus have been identified in 181 countries and regions, with around 23.6% of that total having hit the U.S., while more than 55k people have suffered fatalities globally.

More gloomy employment data released Friday from the U.S. Bureau of Labor Statistics (BLS) showed that total nonfarm payrolls fell by 701k in March – more than generally expected – and the unemployment rate rose 0.9% from the prior month to 4.4%, which tied with January 1975 for the largest over-the-month increase.

The BLS said that the changes in these measures “reflect the effects of the coronavirus (COVID-19) and efforts to contain it.”

Anti-Social Pressure Building

Government-implemented social distancing guidelines and travel bans, as well as self-quarantine and stay-at-home policies on federal, state and local levels have spurred a general shutdown of non-essential businesses across the country, including restaurants, bars, amusement parks, movie theaters, large-scale events and hotels.

According to the BLS, employment in the leisure and hospitality sector fell by 459,000, mainly in food services and drinking places, while significant declines also occurred in health care and social assistance, professional and business services, retail trade, and construction.

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Against this backdrop, investors generally have become very nervous about their investments in a host of hotels, as well as related investment companies and trusts whose holdings mainly reside in the hospitality business.

Stocks, for example, have taken a nosedive at Hilton Worldwide Holdings (NYSE: HLT), Marriott International (Nasdaq: MAR), Hyatt Hotels Corp (NYSE: H), and Wyndham Hotels and Resorts (NYSE: WH), as well as at Starwood Property Trust (NYSE: STWD), Summit Hotel Properties (NYSE: INN), and Condor Hospitality Trust (NYSE: CDOR).

While the Federal Reserve recently committed to several actions to help shore-up stability in the financial system alongside its dual mandate to promote maximum employment and stabilize prices, and Washington signed a US$2.2trn fiscal package to further help businesses and consumers suffering from the virus-induced devastation, sentiment among consumers has been eroding.
In fact, the University of Michigan’s consumer sentiment index for March fell to its lowest level in more than three years, dropping to 89.1 from 101 in February and marking the fourth largest decrease in almost 50 years.

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Expectations for the index’s preliminary reading for April – due out Thursday – reflect another steep drop to around 80.0, according to Bloomberg.

Richard Curtin, University of Michigan’s chief economist for the Surveys of Consumers, recently noted that the latest data from the University of Michigan’s consumer sentiment surveys indicate that “the coronavirus has reduced consumer optimism, and more importantly, it will continue to do so as the virus spreads in the weeks and months ahead.”

Curtin continued that public policies have “gradually become more restrictive along with the unrelenting spread of the virus, and those extensions have been largely supported by the population.

“At some future point, as the economic harm inevitably rises, it will begin to overcome consumers’ patience. Self-isolation for several weeks is quite different than for several months, a consideration that economic and social policies have not fully communicated with the public.”

He added that regional reductions in infection rates “may not result in fully reopened firms and restored jobs due to interdependencies of materials and employees across the nation and the world.”

On the Economic Calendar:

Investors will also be bracing for a slew of other salient economic data in the week ahead, including:

Tues, Apr 7

• JOLTs Job Openings (Feb)
• American Petroleum Institute (API) Crude Oil Stocks

Wed, Apr 8

• U.S. Energy Information Administration (EIA) Crude Oil Stocks
• Federal Open Market Committee Meeting Minutes (from Mar 15)

Thurs, Apr 9

• Initial Jobless Claims
• PPI (Mar)
• University of Michigan Consumer Sentiment (prelim Apr)

Fri, Apr 10

• CPI (Mar)
• Monthly Budget Statement (Mar)

In the meantime, select the Event Calendar option in the IBKR Trader Workstation for a full list of U.S. and global corporate events and earnings, dividend schedules, economic data, IPOs and more.