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Retail Rebound
States eased coronavirus-related restrictions on businesses and consumers in May, likely prompting a pickup in retail sales following record declines during lockdowns. The May retail sales report from the Commerce Department, to be released today at 8:30 a.m. ET, is expected to offer another sign that the worst of the economic shock from the pandemic likely occurred in late March and April when widespread shutdowns to contain the virus were in place across the country. In recent weeks, retail executives said that spending has picked up and that shoppers returned to reopened stores faster than expected. Private data also suggest that economic activity continued to rise in early June, Harriet Torry and Sarah Nassauer report.
Economists surveyed by The Wall Street Journal expect that retail sales, a measure of purchases at stores, at restaurants and online, increased 7.7% in May from a month earlier. That would mark the strongest month-over-month increase since records began in 1992, but follows two months of record drops. The U.S. economy still has a long way to go to recover—economists project it could take years—and recent increases in coronavirus cases in more than a dozen states are casting a cloud over reopening efforts.
WHAT TO WATCH TODAY
U.S. retail sales for May are expected to climb 7.7% from the prior month. (8:30 a.m. ET)
U.S. industrial production for May is expected to rise 2.6% from the prior month. (9:15 a.m. ET)
U.S. business inventories for April are expected to fall 1.1% from a month earlier. (10 a.m. ET)
The National Association of Home Builders housing index for June is expected to rise to 46 from 37 a month earlier. (10 a.m. ET)
Federal Reserve Chairman Jerome Powell makes a virtual appearance on Capitol Hill to deliver the central bank’s semi-annual monetary policy report to Congress. (10 a.m. ET)
Fed Vice Chairman Richard Clarida speaks via prerecorded video on monetary policy and the economic outlook to the Foreign Policy Association at 6:30 p.m. ET.
Japan’s provisional trade figures for May are out at 7:50 p.m. ET.
TOP STORIES
Looking Up, Looking Down
There are additional signs the worst has passed and economic activity is picking up—or at least stabilizing. The Federal Reserve Bank of New York’s monthly survey of manufacturers showed business conditions for the factory sector hit record lows in April and May but held steady in June. “Firms were notably more optimistic that conditions would be better in six months, with the index for future business conditions rising to its highest level in more than a decade,” the New York Fed said.
There are also indications of continuing pain across the U.S. economy. The Cass freight index for both shipments and expenditures remained at recessionary levels in May. “Sky-high unemployment, continuing fears of coronavirus and recent government action will suppress any sort of sharp rebound in activity and most likely keep volumes below 2019 levels until next year at the earliest,” Stifel analyst David Ross said of the latest numbers.
Restaurants face a cash crunch. Many are finding that reopening is harder than closing because revenues are almost impossible to predict and, in addition to financing their reopenings, restaurants need to pay overdue bills.
U.S. advertising spending is expected to plunge by 13% this year, the world’s largest ad buyer said, the latest sign of the toll the coronavirus pandemic is taking on businesses and economic activity. GroupM, a unit of WPP PLC, expects ad spending in the U.S. to drop to $207.9 billion this year from $238.8 billion in 2019, excluding political-ad outlays. As recently as December, the company was forecasting U.S. ad spending would rise by 4% in 2020, Suzanne Vranica reports.
Businesses will slash new overseas investments by 40% this year and as much as 10% next year, according to new United Nations forecasts, as disruptions from the coronavirus pandemic push multinationals to bring production closer to home. The trend will hit poorer, developing countries hardest. In its annual report on the prospects for foreign direct investment, the U.N. Conference on Trade and Development said falling profits would be the main factor behind this year’s collapse in new investment. Unctad said profits among the 5,000 largest companies that operate internationally are expected to decline by 40% on average. Some industries anticipate losses, Paul Hannon reports.
The Way We Were
Federal Reserve Chairman Jerome Powell returns to Congress this morning to testify after a four-month interval in which the central bank has redefined its role in supporting the U.S. economy. Since Mr. Powell last offered his semi-annual testimony in February, the unemployment rate has climbed from 50-year lows to its highest levels recorded in more than 80 years, the central bank’s asset portfolio is nearly double its size from one year ago and Fed officials have projected interest rates will remain near zero for years. Look for Mr. Powell’s assessment of the economy, comments on fiscal policy and forward guidance, and details on Fed rescue programs, Nick Timiraos writes.
WHAT ELSE WE’RE READING
U.S. birthrates were already at a record low. Coronavirus will make it worse. “The Covid-19 episode will likely lead to a large, lasting baby bust. The pandemic has thrust the country into an economic recession. Economic reasoning and past evidence suggest that this will lead people to have fewer children. The decline in births could be on the order of 300,000 to 500,000 fewer births next year,” Melissa Kearney and Phillip Levine write at the Brookings Institution.
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