“Significant Risk of Long-Term Economic Damage Remains High”
By Editor, Bear Market
On June 16th, 2020 United States Federal Reserve Chairman spoke to members of the United States Senate Banking Committee in Washington D.C. about the state of the economy.
In his talk with Senators, there were a few highlights that I want to cover for you below.
Chairman Powell said the 17.7% increase in retail sales in the US during May is a good sign the economy is beginning to recover.
But he also warned about a quick recovery…
In testimony later he said, economic activity is expected to “fall short” or precoronavirus levels. He also went on to say he’s “cautious” about the economic outlook going forward. And that “the risks of long-term economic damage are significant.”
Powell also talked about jobs growth during his talk with Senators.
He said that while there will be jobs growth in the months to come, this will leave us “well short of where we were” before the crisis started.
Generally, members of The US Federal Reserve are extremely cautious about what they say because everything they say affects the markets.
And they don’t want to do this either positively or negatively in most cases.
Yes, the 17.7% increase in retail sales first reported on June 15th is an important first sign of a possible economic recovery in the US.
But possible is the keyword in that sentence, and I’ll get back to that later.
A 17.7% increase in retail sales is great. In fact, it’s the largest monthly increase in retail sales in US history…
And the Mainstream Media made a huge deal about this as did President Trump as you can see below.
But you need to remember that this was after an 8.3% decline in retail sales in March. And a 14.7% decrease in retail sales in April.
This means retail sales are still 8% below their February – pre coronavirus – numbers. And clothing sales are still down 63% from this time last year.
So, while we may be beginning to recover in terms of retail sales… We’re way off from “normal” pre Covid numbers.
This is why Chairman Powell said he remains cautious about any kind of economic recovery.
Another reason he’s cautious is because he sees the real economic data that’s coming out.
For example, a couple other pieces of economic data came out on June 15th that the media mostly ignored because it didn’t fit their narratives.
Bloomberg reported that US Industrial Production only increased by 1.4% in May… After a huge 12.5% drop in April.
The year to year decline from May 2019 to May 2020 of 15.3% is the worst year to year decline in industrial output since 1946.
Or the year after World War 2 ended.
Industrial output dropped so much then in the US as companies looked to retool their facilities to produce consumer and business goods instead of war materials.
Bloomberg also reported that manufacturing production rose 3.8% in May after a 15.5% fall in April.
Again, both numbers are increases – which are good, we need all the help we can get right now. But we’re still far below economic levels and output from February.
And this is where the good news ends…
The Fed also reported that utility output declined by 2.3%, mining dropped by 6.8%, and oil and gas well drilling dropped by 36.9% in May.
Industrial output is rising slowly… This is good. But this area and the economy is still getting hammered.
We’re baby steps into this recovery… If that’s even what this is.
You can’t gauge a recovery – or fall for that matter – with only one month of data. You need to look at several months’ worth.
And the last few months data is horrific when looked at together.
This is also why Chairman Powell is cautious about any recovery because he knows one month of positive data does not prove any recovery yet.
The same thing will be true of any jobs growth we see in the coming months… Yes, that will be good. But it will leave us far below “normal” levels.
And in the face of all this mediocre to bad news… The market is still going up.
On June 16th, 2020 – the day Chairman Powell talked and delivered this mostly meh news – the stock market rose 527 points or 2% on the day.