October 16, 2020

A strong retail sales report indicated some hope for the state of the economy and its recovery. But jobless claims remain well above where they were at any time during the Great Recession, and heavy industrial output declined sharply in September.

Retail spending notches big jump in September

• Seasonally adjusted retail sales figures grew 1.9% in September from August.
• It was the fifth straight month in which the series has improved.

Unemployment claims remain elevated, and the impact of now-expired enhanced benefits is waning

• 1.3 million initial claims for jobless benefits were filed last week, about the same as the week before and well-above levels recorded at any point during the Great Recession.
• According to JP Morgan, cash savings of unemployment insurance recipients fell 74% from July to August.

Heavy industry took an unexpected hit in September

• Industrial production fell a seasonally adjusted 0.6% in September from August.
• The decline followed a stretch of four consecutive months of improvement.

So what? 

Retail sales data exceeded expectations in September, up a seasonally adjusted 1.9% from August — three times the monthly growth rate from July to August — and the fifth straight month of gains . A delayed back-to-school season and earlier start to holiday shopping both contributed to the gains, with improvement also driven in large part by robust spending in housing-related categories – specifically at home-improvement and furniture stores. While overall consumer spending remains below pre-pandemic levels – mostly driven by a severe decline in spending on in-person experiences including sporting events, entertainment and travel – spending in the narrower retail sector alone is now about 4% above February levels. 

But the encouraging sales figures contrast with yet another sobering view on the labor market. Another 1.3 million initial claims for unemployment benefits were filed last week, about the same as the week before. The release marked 30 straight weeks in which initial claims were far above those recorded at any point during the Great Recession. The ongoing struggle of millions of unemployed and underemployed workers was highlighted in a separate report which found that absent additional assistance, many people will face daunting financial burdens in coming weeks. A report from JP Morgan Chase compared the spending and savings rates of unemployment insurance (UI) recipients to those of people who remained employed, and found that while the savings rate of UI recipients rose quickly thanks to additional relief, that financial cushion is quickly disappearing after the expiration of many enhanced unemployment benefits at the end of July. UI recipients more than doubled their cash savings from January to July, but saw those savings fall by 74% from July to August. This trend, teamed with still-elevated levels of joblessness and the uncertain fate of additional pandemic-specific assistance programs poses a grim outlook for many workers nationwide. 

A key measure of heavy industrial output also failed to instill confidence in the state of the U.S. economy’s recovery. Industrial production – a measure of output from factories, utilities and mines – fell from August to September at a seasonally adjusted pace of 0.6%. The decline halted a four month stretch of growth for the series, although previous months’ levels were revised upward. The measure is now 7.1% below where it was heading into the pandemic, and the index’s largest contributor – manufacturing – fell 0.3% on the month. Utility outputs, meanwhile, dropped 5.6% on the month – a significant decline. The unexpected decline may suggest that broad economic impacts of the pandemic – weakened consumer demand, supply chain constraints and an overall uncertain outlook – may be having a direct impact on these heavy sectors. The September ISM manufacturing index indicated that the sector continued to expand last month, but did so at a slightly slower rate than earlier in the summer.

Click here to read past editions of Zillow’s Market Pulse updates.