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Retail Sales Dip, Q2 Productivity Up Big

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Friday, August 14, 2020

Ahead of the opening bell to close out another trading week, we see new economic data which points to the strength of the U.S. consumer and the status of existing workforces and their output. None of these figures generated a notable reaction in the major indexes early Friday, with the Nasdaq up, the Dow down and S&P 500 roughly flat.

Retail Sales for July disappointed analysts on the headline somewhat, posting +1.2% — 80 basis points or so below the consensus estimate, and well off the pace set in June, which this morning was upwardly revised to 8.4%. But this lower headline number does bring us somewhat of a return to normalcy pre-pandemic; in April, we saw Retail Sales drop 14.7%, then bounce back 18.2% in May.

Subtracting high-ticket auto sales, the number improves: +1.9% is higher than estimated, on stronger Electronics, Home Furnishings and Clothing; however, still down from the upwardly revised 8.3% the previous month. Ex-autos and gas, +1.5%, with the Control number — which feeds most directly into monetary calculations at the Fed — at 1.4%. These illustrate slowing momentum, but in-line with pre-pandemic gains.

Preliminary Productivity for Q2 came in much better than anticipated: +7.3%, 5x better than the 1.4% expected, and the strongest read on headline Productivity since 2009. This follows an upwardly revised -0.3% for Q1. Unit Labor Costs for Q2 also outperformed expectations, with 12.2% on the headline taking out the 8.7% expected. The Q1 revision was also sizably upward: +9.8% from the +5.1% last reported.

So production performance did itself proud while the consumer appears to have gotten a bit gun-shy from previous pent-up demand. But ultimately these reads are a look in the rearview mirror; what will more likely occupy economists’ considerations will be how August and Q3 transpire. This is especially true now that now pandemic stimulus will be forthcoming until September at the earliest. Thus, we would expect Retail Sales to fall back again when they are reported a month from now.

It’s a traditionally low-volume time for the market, with investors taking time off — whether going on vacation, or just staying in — and trading levels turning more sluggish until after Labor Day. We would be surprised to see a major spike in either direction over the next few weeks on the major indexes, though “never say never.”

This column will be taking a break in the coming week and a half, as well. It shall either lie dormant until a week from next Wednesday or be picked up by a “guest host” or two. We look forward to resuming Ahead of Wall Street following a short respite.

Mark Vickery
Senior Editor

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