Activity and mobility data continue to normalise despite implementation of local lockdowns in several regions. Consumer data show some resilience with the latest US retail sales rising by more than expected even as the recovery in unemployment rates slows.
The situation continues to deteriorate in the United States. The seven-day moving average of the number of new cases recorded each day is now running around 67,000 cases, more than 3 times the level recoded just a month ago.
The now familiar “hot spot” states in the South and West of the US continue to report test positivity rates, and it is likely that the data understate the true spread of the virus given the long waiting times for results and test kit shortages.
This upsurge in cases, hospitalisations and fatalities across the US has forced a response: 22 states, which account for more than 55% of US GDP, have either put re-opening on pause or have actually gone into reverse. The high frequency data suggest the public are moving ahead of the politicians: retreating from public spaces on a voluntary basis to reduce their risk of catching the disease, regardless of whether governments mandate social distancing or not.
Away from the United States, some countries that appeared to have the virus under control have reported new spikes in infections. Indeed, in some instances (Hong Kong and Israel), the new cases have surpassed the early peak in the spring pointing to a more sustained outbreak. However, in contrast to the first wave, when cases were primarily imported from abroad, it appears that these new spikes in infections reflect more substantial community transmission.
In Continental Europe, the virus remains largely under control. As such, mobility continues to improve, led by France. Spain is a laggard due to re-imposition of mobility restrictions, as reflected in the Oxford Stringency Index where Spain once again is recorded as having the most restrictive policies in EU-4.
In terms of progress on vaccine, there have been two important developments this week: the Oxford University research team and a CanSino Biologics team in China published peer-reviewed results from their early-phase human vaccine trials, clearing the way for the efficacy trials. Both groups reported significant immune response in the form of neutralising antibodies and T-cell responses with what seems to be minimal side effects.
At a World Health Organisation briefing on Monday, Mike Ryan, who heads the group’s health emergencies programme, welcomed the achievements adding that while it is a positive result, “there’s a long way to go… these are phase one studies. We now need to move into larger-scale real-world trials.” According to a survey of investors, more than half of market professionals expect a vaccine over the next 6-12 months – so some of the vaccine optimism seems to be priced in.
The key data release last week was US retail sales. Retail sales rose 7.5% on the month, beating expectations (5%) handsomely. Growth in headline retail sales is now positive on a year on year basis and the level of sales is only marginally below the February level. In short, this key high frequency indicator of expenditure looks decidedly V-shaped. However, first impressions can be deceiving. Retail sales provides an incomplete picture of overall consumption. Expenditure on consumer services is not captured and spending in this category has been disproportionately impacted by social distancing.
Moreover, we should probably expect to see a transitory increase in spending on consumer goods as lockdown ends, with households replenishing stocks of semi-durable and durable goods and some degree of substitution of expenditure towards goods out of categories where spending is constrained (e.g., eating out or taking a vacation).
Nonetheless, the resilience of consumer spending is a genuine feature of this recession, explained in our view by the unusual and muscular fiscal response. When unemployment rises in a recession, disposable income typically falls and so does consumer spending. In this recession, finance ministers have gone to great lengths to support the incomes of the large numbers of people who have been furloughed or lost their jobs. However, that support will not last indefinitely and at that point spending may falter.
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