Same Store Sales Growth Falls

Redbook same-store sales growth in the week of September 5^th fell sharply from 4.6% to -0.1%. Now we’re out of the back to school shopping season. It’s tough to glean much from one week of bad data after a string of good reports. Investors will be following the next few weeks closely to see how the increase in jobless benefits impacts spending. If the retail sales report matches the August Redbook results, growth will be strong.

Soon we will be seeing surveys on how much consumers plan to spend this holiday shopping season. There will likely be a decline in spending. Low single-digit growth would be a plus. By the time we get to November, the unemployment rate might be below 8%. The labor market will be stronger. The good news for physical retailers is that the pandemic occurred in the spring and the 2^nd wave was in the summer.

There will be some social distancing this fall/winter. However, we can expect consumers to shop at stores still. This obviously depends on where the 7 day average of new deaths goes and how effective the new Abbott tests are. Those tests will start being used widely within the next 2-3 weeks. Abbott is hiring 2,000 new workers in Illinois to produce these tests. There is no update on how it’s going. It's likely there will be significant progress by early next month.

Consumers Are Ready To Go On Vacation Again

Everyone continues to wonder when the economy gets back to normal. There is extreme dislocation in the economy which is benefiting the housing industry, work from home stocks, and online retailers. It is hurting travel and everything else that involves human interaction such as office space and fragrances.

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As you can see from the chart above, consumers are getting ready to go back on vacations. In the first week of September, the percentage of consumers comfortable traveling or going on vacation now increased from 26% to 36%. Percentage comfortable with traveling in 1-2 months fell 2 points to 44%. 

If we take consumers at their word, within 2 months, virtually everyone will be traveling again. Then we will finally see the long term impact COVID-19 had. Specifically, we will see how many firms decided to cut down on in-person meetings now that they see what can be done via teleconferencing.

Personally, I see minimal long term changes. People will still go to work. Maybe they will go to the office 4 days per week instead of 5 days, but there won’t be a major shift. Even though it seems like this new world has been going on for years, it has only been 6 months. The competition will be meeting customers in person. All firms will adapt back to the old normal. A change in the past week in travel sentiment is related to the decline in COVID-19 deaths and the new Abbott tests set to be released soon.

Rent Payments Fall

Fewer people are paying their monthly rent which is surprising because the economy has improved in the past few months. As you can see from the chart below, the rent payment tracker, which measures 11.1 to 11.5 million apartment units each month, saw payments fall from 79.3% to 76.4% in September which is the lowest of the year. This is likely related to the decline in unemployment benefits. This is in line with the increase in the percentage of households going hungry. 

A small percentage of people who were hurt the most by the decline in unemployment benefits have been severely hurt. It would make sense to give out checks to people who made under $50,000 per year in 2019, just to keep them going a few more months until the leisure and hospitality industry gets back to normal. It’s not possible to wait 2-3 months to get your job back if you can’t afford rent and/or are going hungry.

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Job Openings Increase Again

In July, there were 6.618 million new job openings which increased from 6.001 million and beat estimates for 5.95 million. The highest estimate was 6 million. It's surprising how negative economists were. The labor market has been steadily improving this summer. As you can see from the chart below, the number of unemployed people per job opening fell again. The peak was much below that of the post-recession period last cycle.

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When most of the temporary job losses come back in the next few months, the unemployment rate will be much lower than the peak past cycle. Long term impacts on the economy will be lower than the last recession. However, the most vulnerable will be hit harder. It’s the renters who are in trouble this time, not the homeowners. On the negative side, the JOLTS report showed there were 5.787 million new hires in July which was down from 6.97 million last month.

COVID-19 Not Spreading In Florida

There was a burst in deaths from COVID-19 on Wednesday which makes sense because the holiday on Monday pushed the weekly increase back one day. Long term trend of improvement is still intact. As you can see from the chart below, even though school in Florida started back up in the beginning of August, there has been no increase in new cases per day. 

That same downtrend in cases has occurred in Mississippi, Tennessee, and Georgia. South was once the bastion for COVID-19. Now, it’s doing well as the 2^nd wave is long gone.  

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There were 35,244 new cases on Wednesday which is still fairly low. 7-day average is very close to the peak in April. There were 1,209 new deaths which is high because there usually aren’t as many deaths reported on holiday weekends. Long term trend still looks good. 

We're looking for the 7-day average to continue to fall towards its previous bottom of 519 in July before we see the impact of the new Abbott tests. We should see that in the (deaths) data by October or November.