Economic Recovery Looks A Way Off Yet

Economic Recovery Looks A Way Off Yet

over 3 years ago2 mins

Investors jumped on a record rise in US retail sales last month as cause for celebration this week – sending stocks jumping too. But while such economic data is among the most surprising ever, the road to full recovery still looks likely to be long 🚴‍♀️

What does this mean?

US retail sales fell 16.4% in April compared to March – far worse than expected, even given the coronavirus-induced lockdown. On Tuesday, however, it was revealed that May’s sales figures were much better than expected – bouncing back 17.7% from the previous month, while pundits had only predicted an 8% increase.

Helped by such eye-catching statistics as 188% sales growth at clothing stores and – more significantly – a 44% jump in sales of motor vehicles and parts (the highest-value subsector), May represented easily retail’s largest monthly rise ever. And it’s not the only data currently confounding economists’ expectations 🤯

Besides recent unemployment surprises, building firm sentiment also surged on Tuesday by record levels, with housing construction likely to follow. In fact, one influential measure of the frequency and size of US economic surprises has rapidly swung from its most negative ever to its most positive. The good news should feed through to company earnings – which may be why investors have sent US stocks up 3% so far this week.

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Why should I care?

With signs of economic life re-emerging, some investors think US company shares, despite being expensive relative to present profit predictions, are under-owned: according to a report on Tuesday, stock funds experienced their biggest outflows in a decade last month. Beyond America, meanwhile, German investors are also feeling confident that their economy will soon pick up 😌

But things aren’t back to normal just yet. May’s retail sales, while bouncy, were still 6% lower than a year ago – and economists still expect US economic growth this quarter to experience its biggest fall on record.

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There could be further data surprises in store (and out) for June as lockdowns continue to ease. But according to some investors, including research firm TS Lombard, the long-term picture is likely to be less rosy, as key metrics like industrial production remain disappointing. Until it’s certain that economies can get back up and running without unleashing a second wave of coronavirus cases, investors might do well to err on the side of caution.

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