Zillow Market Pulse: May 15, 2020

May 15, 2020

More than 11 million workers were laid off in March, driving the early downturn in the labor market. For the second straight month, retail sales figures fell off a cliff. And consumers appear more confident in the short-term, but also appear to be bracing for a longer-than-expected path to recovery.

• A huge increase in layoffs drove the early downturn in the labor market

  • 11.4 million people were laid off in March, according to the monthly Job Openings and Labor Turnover Survey (JOLTS) report.
  • The number of job openings declined about 800,000.

• Retail sales figures fell by the most ever recorded — again

  • Sales at retailers fell 16.4% in April from March, easily the largest one-month decline ever reported.
  • Sales at clothing retailers have fallen 89% from February.

• Consumer outlook is shifting

  • In a reversal from last month, the index of current economic conditions rose strongly, while consumers' forward-looking outlook fell, according to the University of Michigan consumer sentiment indices.
  • The swing might suggest consumers are optimistic about nascent recovery efforts, but less-convinced of a quick economic recovery.

 So what?

The March decline in job openings was unsurprising. That said, the monthly Job Openings and Labor Turnover Survey (JOLTS) report – which includes data from the entire month, unlike the monthly jobs report – did present some interesting insight into how the initial downturn in the labor market played out. The number of job openings fell by about 800,000 in March – the largest one-month decline on record, but far less than other labor market indicators would suggest. The number of layoffs, meanwhile, skyrocketed. There were 11.4 million layoffs in March, easily an all-time high and nearly 10 times February's figure (the highest one-month level of layoffs during the Great Recession was 2.7 million). Normally, a slowdown in hiring normally leads the labor market into a recession, and layoffs tend to follow; this time around, the opposite is occurring. In coming months, it will be this report that will indicate when U.S. hiring resumes and recovery efforts are underway and gaining momentum.

For the second month in a row, retail sales easily posted their all-time worst one-month decline. The 16.4% fall in retail sales in April almost doubled the 8.3% monthly dive recorded in March, and April sales were down more than 20% from a year ago. No matter how you slice it, it's clear that spending took a huge step back in April, as large parts of the economy shut their doors and stayed home. The monthly decline in spending was felt particularly hard at stores selling discretionary and/or nonessential goods. Sales at furniture stores fell 58.7% on the month, while clothing retailers reported that sales were down 90% in April from a year ago. With hindsight, April may mark the bottom for retail sales, but it is still exceptionally unclear what the recovery will look like. Major retailers including J. Crew and Neiman Marcus have already declared bankruptcy, and others are either expected to soon follow suit and/or report major revenue shortfalls. Small business optimism is also shot. In a survey updated yesterday by the Census, about a third of business respondents said they thought a return to normal business would take more than six months to accomplish. Retail closures will lead to substantial job losses and will trickle-down effects for commercial landlords and the commercial real estate sector as a whole. The path of recovery for retail sales – which makes up about 25% of overall consumer spending, which itself comprises about 2/3 of overall economic output – will be paramount to getting the economy back to some semblance of normal.

Of course, a key to achieving this will be a confident consumer. Businesses might reopen, but it won't do them any good – and in fact could present more challenges – if customers don't come back. Data suggests that foot traffic to many key retailers – including big box restaurants – remains well below last year's levels, even in states that have reopened. The May University of Michigan Index of Consumer Sentiment offered some good news, at least on the surface: The overall measure of sentiment rose 2.6% in May from April, largely thanks to an 11.7% increase in people's perceptions of current economic conditions. But in a reversal of the trend from last month, the forward-looking index of consumer expectations fell 3.4% in May. Taken together, the report suggests that consumers are encouraged by the fact that large parts of the economy are primed to reopen in the near future and hopeful that the recovery will begin soon, but are also coming to grips with the fact that the recovery is likely going to be much longer than many initially expected. All is not lost, though. Despite the devastation taking place throughout the economy, and the fact that the overall index has fallen by 27% since February, consumer sentiment remains well above its all-time low level of 55.3 reached in February 2008.

 

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