Disappointing Industrial Production And Manufacturing

Phase 2 Incoming

With the latest RedBook retail sales report, we can now say the consumer is faltering as spending growth fell from -0.1% to -1.2% in the week of September 12th. An increasing number of states are giving out the $300 in weekly benefits which should be a positive. A max payout for the benefits that should have been paid since August 1st is $1,800 which means 6 weeks of benefits get paid at once when the states start paying them. 

That limit shouldn’t be a huge issue as many states are paying them now. The worst-case scenario is missing 1-3 weeks. That’s the states that start paying them later this month or early October. Consumers aren’t spending like they are getting money soon. Those on benefits cut their spending in late August. The key remains getting the labor market going again.

(Click on image to enlarge)

As you can see from the chart above, we are now in phase 2 of the recovery. The first phase was V-shaped. The next phase has slower improvement. In this graph, the economy doesn’t get back to pre-virus growth by the end of 2022. That means it will take many years to make up for lost growth. 

It should get back all the losses on an absolute basis by the 2nd half of next year. This is a great assessment of the current consensus. But the recovery might be stronger if treatments, testing, and vaccines eliminate the stranglehold that COVID-19 still has over the economy.

This week JP Morgan brought workers back to the office, but they had to rescind that because an unspecified number of workers got the virus. Personally, I think this was bad timing. They should have waited another 2 weeks until Abbott’s tests come out. Also, it was poor planning to halt a program because people tested positive; that was a given. 

MLB didn’t stop the entire league because a few teams had outbreaks. Similarly, JP Morgan should have had a plan before they brought workers back. It’s ridiculous to think that no one will get the virus if you bring them back. You need to determine what you’re willing to live with. If you aren’t willing to have any cases, then bringing people back is a mistake.

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