One of the trends we have been highlighting in the monthly retail sales report over the years has been the growing trend of eating out versus eating in.  For years we have seen the Bars and Restaurants category of retail sales consistently gaining share at the expense of the Food and Beverage Stores category.  Just last month, Bars and Restaurants saw their share of total sales rise to 12.46%, which was just below the record high of 12.47% from October 2018.  That total share of sales was also 0.07% greater than the share of Food and Beverage Stores (12.39%) which is also right near record highs.

The run was fun while it lasted.  With restaurants all over the country being forced to shut due to fears of the Covid-19 virus, even if American consumers wanted to go out to eat, the only way they can is by ordering takeout.  With everybody stuck at home, more Americans will undoubtedly be eating at home in the coming months, and that is going to cause the share of total sales for Bars and Restaurants to come crashing down.  The only question is whether other sectors besides Food & Beverage Stores will pick up the slack or if the pie will only get smaller as consumers reign in spending.

The trend of dining out is likely to take a hit in the coming months, but one trend that will only accelerate is ‘clicks’ over ‘bricks’.  After overtaking the category of General Merchandise in September 2018, Nonstore retailers have been picking up share at a steady pace ever since.  Through February, the current spread in share of 1.3 percentage points is not far from the record seen last September.  Again, though, with physical stores all over the country simply closing for an indefinite period in recent days, online is going to become the only option for consumers whether they can leave their homes or not.  Start a two-week free trial to Bespoke Institutional to access our interactive economic indicators monitor and much more.

This morning the NAHB released results from their monthly survey of homebuilders.  The index showed some weakening in sentiment as it fell to 72 in March from 74 in February.  As with many other recent indicators released, that is a fairly modest decline given the current environment and likely would not have captured the full extent of equity market declines and shutdowns to enforce social distancing.  Granted, those effects are also not entirely absent either seeing as the NAHB noted half of the responses to the survey came after March 4th.

The headline index fell on lower readings pretty much across the board.  Each of the sub-indices with the exception of the Midwest fell in March. Additionally, perhaps the biggest negative shift this month was for future outlook with that index falling 4 points.  By comparison, the index for present sales only fell by 2 points. In other words, homebuilders seem to have experienced some slowdown in activity and are anticipating for it to get worse.

Again the index for the Midwest in March was a bit of an outlier.  It was the only region to rise in March, but that is after it was a bit weaker than other regions recently. In fact, the rise to 67 also still leaves the index for the Midwest 6 points off of the December high of 73.  Overall, as with the headline index, across different regions, sentiment has shifted lower although this is likely just the tip of the iceberg.

One factor at play that that may be balancing itself out is mortgage rates. The national average for a 30 year fixed rate mortgage was sitting at the low end of the past few years’ range earlier this month.  In the past week, though, mortgage rates have moved sharply higher and are now at similar levels to where they were last year. In other words, while low rates may have temporarily bolstered homebuilder confidence earlier this month, given the move in the past week, those effects have likely eased. Turning to next month’s survey, there is likely to be a large downward shift lower in homebuilder sentiment, especially if rates continue to drift higher. Start a two-week free trial to Bespoke Institutional to access our interactive economic indicators monitor and much more.

Yesterday, Goldman Sachs’ lead economist cut the bank’s GDP forecasts for the first half down to 0.0% in Q1 and a decline of 5.0% for the second quarter.  Based on how things are moving and in the direction they are going, 5% may sound like an optimistic scenario.  While all sorts of numbers have been thrown around regarding just about everything lately, we wanted to help put in perspective just how severe a quarterly decline in GDP of 5% really is.

The chart below shows US quarterly GDP going back to 1950.  First of all, negative quarters for GDP have been uncommon for the US economy over time.  In the 291 quarters since 1950, the US economy has only contracted in 41 (14%) of those quarters.  5% declines, however, are incredibly rare.  SInce 1950, there have only been six prior quarters where GDP declined by 5% or more with the most recent being back in December 2008.

Obviously, the circumstances surrounding each contraction in GDP is different, but prior quarters where there was such a large shock to the system were typically not ‘one and done’ events. In fact, all six of the prior quarterly contractions of 5% or more were either immediately preceded or followed by another quarter of negative growth averaging a decline of over 2%. Start a two-week free trial to Bespoke Institutional to access our full suite of research and interactive tools.

The average S&P 1500 stock is now down more than 25% month-to-date, 35% year-to-date, and 44.5% from its 52-week high.  Below is a look at the carnage across S&P 1500 sectors.  Start a two-week free trial to Bespoke Institutional to access our full suite of research and interactive tools.

With US equities down another 10% today, the S&P 500 is moving increasingly closer to reaching the threshold of a 30% decline. As of this afternoon, the S&P 500 is down 26.7% from its record high less than one month ago.  The chart below shows S&P 500 drawdowns from record closing highs since the start of 2000.  The last twenty years have really been a period to behold for US equities.  Even though it includes one of the longest bull markets in history, the S&P 500 has seen drawdowns of 49.1%, 56.8%, and now 26.9%.  Start a two-week free trial to Bespoke Institutional to access our full suite of research and interactive tools.

One of the first big drops in US economic data showed its face today in the form of the first of the regional Fed indices covering the month of March.  The NY Fed’s headline reading on general business conditions experienced it largest drop on record in March, falling 34.4 points from 12.9 in February to -21.5.  That is the first negative reading since June of last year, but the lowest level of the index for current conditions since March of 2009 during the financial crisis.  Back then, the index remained below -20 for six consecutive months. Prior to then, the only similar readings can be found early in the survey’s history in November of 2001.

As for expectations six months out, this month’s reading of 1.2 is again the lowest reading since early 2009, and as with the current conditions index, you would need to go back to 2001 to find similarly low readings before that. The 21.7 point decline in expectations this month is also the largest one month decline since January 2009 when it dropped by slightly more (24.9 points). Overall, New York area businesses’ outlook in both the near term and further out have deteriorated dramatically in just one month.

Of the individual components, pretty much everything was weaker this month for both current conditions and expectations. Only two categories (expectations for unfilled orders and inventories) rose this month. Other than the headline index, the two categories who’s declines stand out the most, and likely drove the large declines for the headline number, are for new orders and shipments.  While other categories’ declines are much more modest by comparison, they too are significant nonetheless.

The index for new orders fell from 22.1 last month to -9.3.  This was slightly lower in June of last year when it had fallen to -9.7, but the 31.4 point month-over-month decline was the third largest on record behind October of 2001 (43.2 point drop) and November of 2010 (31.8 point drop).  With current demand drying up, expectations for the future are also weak as the index for expectations six months out fell to 17.6 from  27.5 in February.  While this does not draw parallels to the financial crisis like other aspects of this month’s survey, this is the lowest level since January 2016.

Given the weaker demand, the index for shipments has also come down a lot.  The current conditions index for shipments is in negative territory, -1.7, for the first time since October of 2016. The 20.5 point decline from last month is the largest decline since August of 2015. As for the forward looking indicator, conditions have not fallen off of a cliff in the same way, but are at the low end of the past several year’s range.  Now at 20.5, it is at its lowest level since only October.

Weekly jobless claims have been one economic indicator that have been closely watched over the past several weeks given their higher frequency and potentially more timely reading on the impacts of Covid-19 on the American workforce.  While nothing has shown up there, the NY Fed’s indices for number of employees and average workweek have turned lower. The index for number of employees has been significantly lower multiple times in the past few years making the drop to -1.5 nothing too crazy, but the 8.1 point decline was the largest in over a year.  Meanwhile, expectations for increasing the number of workers six months out is at its lowest level since 2017.  Not only are NY area businesses not taking on more workers, but the index for average workweek fell to -10.9 which is the lowest level since December 2015.  Start a two-week free trial to Bespoke Institutional to access our interactive economic indicators monitor and much more.