- U.S. consumer spending and sentiment expected to fall
- U.S. manufacturing production expected to plunge
- House today expected to approve new $3 trillion stimulus bill and proxy votingÂ
- Fed’s balance sheet purchases heat up
U.S. consumer spending and sentiment expected to fall — Today’s reports are expected to show that U.S. retail sales plunged in April and that consumer sentiment continued to fall in early May. Today’s reports are important because U.S. consumer spending was the main pillar holding up the U.S. economy before the pandemic, and it is now the main variable that will determine how long it takes the U.S. economy to recover.
The consensus is for today’s April retail sales report to plunge by -12.0% m/m, which would add to March’s -8.4% drop. The combined March-April drop would be -20.4%, indicating that U.S. consumers in March-April bought only about 80% of their usual amount of retail products.
Today’s retail sales drop is expected to be less severe after excluding auto sales, which nearly evaporated in the last two months. Excluding autos, today’s April retail sales report is expected to fall by -8.5%, adding to March’s -4.2% drop and producing a combined March-April drop of -12.7%.
The worst of the retail sales figures should be over after today’s report since some states began reopening in May. Still, retail sales are likely to remain weak over the next few months because millions of people are currently unemployed. Moreover, spending is likely to remain weak even among people who still have a job since restaurants, entertainment, and travel are still largely shut down and will reopen slowly. Also, many people are likely to curb their spending to boost savings and pay down debt because of uncertainty about the future. There is no way to know for sure at this point how long the pandemic and recession might last.
The consensus is for today’s preliminary-May University of Michigan U.S. consumer sentiment index to show a moderate decline of -3.8 to 68.0, which would add to April’s plunge of -17.3 points to 71.8. The consumer sentiment index in April fell to an 8-1/4 year low of 71.8, but was able to remain well above the Great Recession’s low of 55.3 posted in November 2008. As long as the U.S. economy starts to reopen in coming weeks, U.S. consumer sentiment should bottom out fairly soon and start to slowly improve.
U.S. manufacturing production expected to plunge — The consensus is for today’s April manufacturing production report to plunge by -14.0% m/m, adding to March’s decline of -6.3% and producing a combined March-April decline of -20.3%. The overall April industrial production report is expected to show a smaller decline of -12.0%, adding to March’s decline of -5.4% and producing a combined March-April decline of -17.4%.
The U.S. manufacturing sector was already in a recession before the pandemic hit due to trade tensions, weak business investment, and weak export demand. The pandemic then hit the manufacturing sector like a ton of bricks because many factories were forced to shut down completely. A recovery is likely to be slow since factories will reopen cautiously and since demand for U.S. manufactured products is likely to remain weak both at home and overseas.
House today expected to approve new $3 trillion stimulus bill and proxy voting — The House today is expected to approve a new $3 trillion stimulus bill, containing about $1 trillion in rescue funds for state and local governments, another round of stimulus checks to individuals, and the extension of unemployment insurance.
The House today is also expected to approve new rules that would allow House members to vote by giving their proxy to another House member who is in attendance on the House floor. That would overturn the long-standing tradition that House members have to be present on the floor to vote. However, Speaker Pelosi wants to make floor votes safer and require less traveling by House members between their home districts and Washington.
Republicans have already voiced near unanimity in opposing the Speaker Pelosi’s $3 trillion stimulus bill. Senate Majority Leader McConnell last week said that Senate Republicans remain on “pause” as they wait to see whether the stimulus already passed will be enough. However, Mr. McConnell on Tuesday took a step closer to some new legislation when he said, “We’re going to insist on doing narrowly targeted legislation if and when we do legislate again, and we may well.”
Republicans have so far been reluctant to provide any bailout money to state and local governments. However, they will see increasing political pressure to provide bailout money when state and local governments are forced to engage in large layoffs to offset sharply reduced tax revenues and sharply higher pandemic expenses. New Jersey, for example, saw its tax revenues in April plunge by $3.5 billion or 60% from the year-earlier level. U.S. cities will lose $360 billion of revenue from the pandemic through 2022, according to analysis by the National League of Cities.
Senate Republicans do not expect to move any legislation until June at the earliest. That means that Fed Chair Powell is not likely to get his wish for more fiscal stimulus for a number of weeks.
Fed’s balance sheet purchases heat up — The Fed reported late Thursday that its balance sheet in the week ended Wednesday rose by +$213 billion from the previous week, which was a 4-week high and soundly beat the increases of +$83 billion and +65 billion in the two previous weeks. The Fed this week finally got its corporate bond facility running and bought $305 million worth of bond ETFs. The Fed’s balance sheet rose to a new record high of $6.93 trillion, up by $2.8 trillion (+67%) from the end of February and accounting for 32.2% of GDP (vs 19% before the pandemic).
