Holiday Shopping Estimate

Latest data suggests this won’t be a good holiday shopping season. An extra $300 in jobless benefits per week ran out for many states. Plus, the labor market is weakening and no stimulus is on the docket. Furthermore, there will be more restrictions in the Midwest because of COVID-19. 

Even if this COVID-19 wave ends by early November, all that lost income won’t suddenly be back. Imagine if you lost your job for 2 weeks in October. You aren’t going to spend as much on Christmas presents even if you are working full-time during the shopping season.

(Click on image to enlarge)

As you can see from the chart above, expectations are for just 0.5% growth which is the lowest since 2009. Physical retail stores, which do well on Black Friday, will have much fewer shoppers. People are struggling and it’s not safe to be crowded in stores. It’s one thing to shop normally. It’s another thing to be packed in stores like people are on Black Friday.

Yes, the September retail sales report was good, but the unemployment stimulus won’t be back. It came at the wrong time if you’re a retailer. Back to school shopping was solid, but holiday shopping is facing a tougher situation. COVID-19 was on the mend in August. It isn’t in October. 40% of households making $40,000 or less have experienced a job loss or a loss of income. 

Christmas spending is an easy discretionary purchase to cut back on. Plus, spending on things like concerts and trips will be down. There are fewer gift options. Spending online will be up, but it won’t counteract the decline at physical stores enough to allow for a strong season.

Credit Tight For Consumers

Even though financial conditions are loose for corporations, they aren’t for consumers which is why the fiscal stimulus was so important; the lack of one this fall is going to be a problem. As you can see from the chart below, the net percentage of banks tightening lending standards as of the end of July hit a higher point than the financial crisis. It’s tighter than ever (going back to 1991). 

If there isn’t another stimulus, conditions will likely be tighter. A problem with credit is it is freely available when you don’t need it, but it becomes tight when you do. This is why you don’t want to rely on margin trading when the stock market is crashing. You’ll be lucky if your broker is even accepting trades. It will likely raise margin requirements to lower its own risk of failure.

(Click on image to enlarge)

Housing Is Still Doing Well

The housing market is still doing well. As you can see from the chart below, the housing market index rose to 85 in October which was up from 83 and was the highest reading ever (since 1985). The single-family sales index was up 2 points to 90. That’s up from 36 in April and 81 in February. In other words, housing has had a V-shaped recovery and it’s doing better than before the recession. It has been helped by the decline in rates. 

As of last week, the average 30-year fixed rate was 2.81% which is the lowest ever (going back to 1971). The 30-year mortgage was introduced in the mid-1950s, so this is the lowest rate ever for that loan. Even though the 10-year yield bottomed, the 30-year fixed rate is below the August low of 2.88%.

(Click on image to enlarge)

Expectations for the housing market were up 3 points to 88. It was 79 in February and 36 in March. The traffic index stayed at 74. It bottomed at 13 in March because people didn’t want to go to houses due to COVID-19. The northeast index rose 7 points to 88. That’s a small housing market though. 

Midwest fell 1 point to 77. This data is from October, so the spike in COVID-19 cases definitely played a small role. In the south, the index fell 2 points to 83. In the West, the index rose 7 points to 95. It’s possible homebuilders are optimistic about the possibility of rebuilding now that many of the California wildfires have died down (there are new ones in Utah & Colorado though).

Air Traffic Is Back?

Flying is coming back in October which is surprising because COVID-19 cases are increasing. As you can see from the chart below, TSA checkpoint passengers rose to 1.032 million. That’s the first time it hit 1 million since March. According to the COVID-19 tracking project, there were 57,148 new cases on Monday. 

Apparently, this isn’t impacting travel. Obviously, it’s still down over 50% from before the pandemic, but you would think until better treatments come out that TSA checkpoint numbers would stay down. If they don’t stop increasing soon, we'll need to revise expectations for holiday travel.  

(Click on image to enlarge)

There were 456 deaths on Monday from COVID-19 which pushed the 7-day average up to 711. There were 37,744 people hospitalized which is up from 36,428. One piece of good news is there were 1.2 million tests which was a new record high. That gives us promise that the Abbott tests are going to allow the economy to get back to normal in Q1 of next year. Wisconsin, the Dakotas, France, and Belgium are in the throes of their outbreaks. 

We're all looking for signs of improvement from them this week. 7-day average of deaths in France rose from 72 on October 1^st to 107 on the 18^th. We're expecting that type of modest increase in America in the next 3 weeks.

Conclusion

It looks like this holiday shopping season will be without a stimulus. Some changed their tune to the negative when we saw the spike in jobless claims. Plus, we have an outbreak of COVID-19 in the Midwest. Consumers can’t access credit either because the banks have tightened their standards. 

Despite the economic weakness, homebuilders have record confidence. Even with the increase in cases, the number of people flying hit a post-COVID-19 record. Flying will pullback in the coming weeks. If it doesn’t, that’s good news for this holiday traveling season.