COVID-19 and its impact on the U.S. economy will continue to take centerstage in the week ahead.
With earnings season winding down and economies in several states reopening, market participants will be carefully monitoring key economic data and commentary from the Federal Reserve Chairman Jerome Powell.
On the heels of a dismal April jobs report which revealed that the U.S. economy lost a record 20.5 million jobs, the April retail sales report will peel back the curtain on the health of the U.S. consumer.
Retail sales are expected to have plunged 11.4% in April following a record 8.7% decline in March, according to economists surveyed by Bloomberg. Core retail sales, excluding the volatile auto and gas components, will likely have sunk 5.5%, down from a 2.8% decline in the prior month.
“Retail sales already saw their sharpest monthly fall on record in March but, with lockdown measures only coming in during the second half of the month, sales are set to fall even further in April,” Capital Economics Senior U.S. Economist Michael Pearce wrote in a note May 8.
Pearce predicted that the categories that were hit in March will have continued to have declined in April. “Spending on food and drink services is likely to have led the declines and, while that means grocery store sales will have remained elevated, they also look set to have dropped back in April after an initial wave of stockpiling. Online sales may be the only sector to have seen an increase.”
The consumer represents about 70% of GDP and was considered the bright spot within the U.S. economy prior to the COVID-19 outbreak. Though there have been and will likely be sharp declines in consumer activity in the near term, Wells Fargo economist Jay Bryson does not expect the damage to last long.
“With some stores shuttered for the entire month of April, the register receipts will likely be grim. The cratering in sales during April could mark the low point of the cycle as even a gradual reopening in May offers scope for at least some kind of an increase,” Bryson explained in a note May 8. “If the government’s preferred forecasts are right, and the virus retreats quickly this summer, the broader reopening and pent-up demand suggest the retailers who have been able to survive the shutdown should see sales normalize in the second half of the year.”
Meanwhile, investors will be tuned in on Wednesday when Fed Chair Jerome Powell speaks via webcast hosted by the Peterson Institute for International Economics at 9 a.m. ET. He is expected to speak about the current issues facing the U.S. economy.
Powell’s webcast comes after the Fed’s late-April meeting in which the Committee announced that it would keep short-term interest rates near zero until it felt that the U.S. economy “weathered recent events.” Additional clues on the Fed’s outlook for the U.S. economy will be the focal point for market watchers.
Earnings season is winding down but Under Armour, Cisco, Marriott and Norwegian Cruise Lines are among the big names reporting this week.
“Heading into 2020, earnings growth was expected to be positive for all four quarters. However, the escalation of COVID-19 to a global pandemic has since reversed this trend, leading earnings growth expectations to be negative in each quarter, with the first and second quarters falling 13% and 41%, respectively. For the most part, no sector, overall, has been ‘immune’ to the detrimental impacts of the virus,” Raymond James Chief Investment Officer Larry Adam said in a note May 8.
This earnings season, Adam pointed out that only 64% beat earnings estimates compared to the 20-quarter average of 73%.
Tuesday: NFIB Small Business Optimism, April (86.5 expected, 96.4 in March); CPI month-on-month, April (-0.7% expected, -0.4% in March); CPI excluding Food & Energy, April (-0.2% expected, -0.1% in March); CPI year-on-year, April (+0.4% expected, +1.5% prior); Monthly Budget Statement, April (-$119.1 billion in March)
Wednesday: MBA Mortgage Application, week ending May 8 (+0.1% prior); PPI Final Demand month-on-month, April (-0.4% expected, -0.2% in March); PPI excluding Food & Energy month-on-month, April (-0.1% expected, +0.2% in March); PPI Final Demand year-on-year, April (-0.2% expected, +0.7% in March); PPI excluding Food & Energy year-on-year, April (+0.8% expected, +1.4% prior)
Thursday: Import Price Index month-on-month, April (-3.1% expected, -2.3% in March); Initial Jobless Claims, week ending May 9 (3.169 million prior); Continuing Claims, week ending May 2 (22.65 million prior); Bloomberg Consumer Comfort, week ending May 10 (36.9 prior)
Friday: Retail Sales Advance month-on-month, April (-11% expected, -8.4% in March); Retail Sales excluding Autos & Gas, April (-5.5% expected, -2.8% in March); Retail Sales excluding Autos month-on-month, April (-8% expected, -4.2% in March); Empire Manufacturing, May (-65.0 expected, -78.2 in April); Industrial Production month-on-month, April (-11.4% expected, -5.4% in March); Capacity Utilization, April (65.0% expected, 72.7% in March); University of Michigan Sentiment, May preliminary (67.5 expected, 71.8 in April); Net Long-term TIC Flows, March ($49.4 billion in February); Total Net TIC Flows, March (-$13.4 billion in February)
Heidi Chung is a reporter at Yahoo Finance. Follow her on Twitter: @heidi_chung.
More from Heidi: