Wednesday, May 20, 2020
America is reopening, state by state.
That’s welcome news for many businesses, but we’re far from business as usual. Last week’s economic news included unemployment hitting an 80-year high, a record drop in retail sales (-16.4 percent), and an unprecedented decline in industrial production (-11.2 percent).
Weak consumer demand is also a concern, according to Matthew Klein of Barron’s. “…The pandemic has lowered consumer demand much more than it has damaged productive capacity. It’s much easier to bring factories back online than it is to get customers back into shops and auto dealerships…Unless consumption rebounds quickly, the world will soon be faced with an unprecedented glut of goods that can’t be sold.”
Some households may be able to sustain or increase consumption because of generous unemployment benefits. The Coronavirus Aid, Relief, and Economic Security (CARES) Act increased unemployment benefits by $600 per week. The intent was to provide Americans, who were out of work because of the pandemic, with income equal to the national average salary of $970 per week, reported Amelia Thomson-DeVeaux of FiveThirtyEight.
As it turns out, about 68 percent of those filing for unemployment – teachers, construction workers, medical assistants, food service workers, and others – are receiving more money through unemployment than they did from employers.
An analysis conducted by economists at the University of Chicago, and cited by FiveThirtyEight, found, “…the estimated median replacement rate – the share of a worker’s original weekly salary that is being replaced by unemployment benefits – is 134 percent, or more than one-third above their original wage.”
In recent weeks, the number of unemployed workers has grown to about 36 million, according to CBS News. Unusually high unemployment combined with unusually high unemployment benefits may mean some Americans may have more money to spend than they might have had otherwise. The combination could improve demand for goods. It also could make it more difficult for employers to persuade employees to return to work.
Last week, major U.S. stock indices finished lower.
Data as of 5/15/20 | 1-Week | Y-T-D | 1-Year | 3-Year | 5-Year | 10-Year |
Standard & Poor's 500 (Domestic Stocks) | -2.3% | -11.4% | 0.5% | 6.0% | 6.2% | 9.7% |
Dow Jones Global ex-U.S. | -2.6 | -20.7 | -12.9 | -4.5 | -3.2 | 1.3 |
10-year Treasury Note (Yield Only) | 0.6 | NA | 2.4 | 2.3 | 2.1 | 3.5 |
Gold (per ounce) | 1.8 | 13.9 | 33.6 | 12.1 | 7.3 | 3.5 |
Bloomberg Commodity Index | -1.1 | -23.8 | -22.6 | -9.6 | -10.2 | -6.8 |
S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods. Sources: Yahoo! Finance, MarketWatch, djindexes.com, London Bullion Market Association. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.To learn more about Greg Womack, CFP and his firm, Womack Investment Advisers, visit our website at www.womackadvisers.com. To receive a copy of our Womack Weekly Commentary on the markets and other related information (provided every Monday), email us at email@womackadvisers.com or call us at 877-340-1717.
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Womack Investment Advisers, Inc.
WOMACK INVESTMENT ADVISERS, INC.
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