The Day at a Glance | May 15 2020

Consumption in the US is hit hard

Retail sale figures in April recorded their worst month since 1992, as it confirmed a monthly (-) 16.4% setback (-21.6% annually), surpassing the analysts` consensus estimate. The numbers reflect the result of the US economy`s closure, with the majority of citizens in confinement and many facing unemployment. The largest setbacks were seen in the sale of apparel (-78.8% monthly), electronics (-60.6%), while foods and beverages fell (-) 13.1% (after an important rise in March due to panic buying), and consumption at restaurants and bars dropped (-) 29.5%. The only sector that recorded growth was online sales (8.4%). It`s expected the fall in consumption will lead the economy`s contraction in 2Q20, as estimates project historical figures due to the absence of economic activity.

Mixed data regarding China`s recovery

Consumption, production and investment figures of the world`s second largest economy show a slow recovery after the virus impacted the country, a sign that backs expectations of a slow recovery at a global level. Retail sales fell more than expected during April (-7.5% annual vs 6% e.), as consumers are still cautious and show a preference for online consumption (12.2% annual) over out-of-home consumption, such as outings to restaurants (-31.1% annual). Investment maintained a sluggish performance (-10.3% annual). Investment driven by the government and focused on infrastructure and technology achieved a recovery that surpassed private investment (-13.3% annual), although both are contracting at an annual rate. Retail sales as well as investment showed lower rates of contraction than in March, but their recovery has been slower than expected. Lastly, the good piece of news comes from industrial production, which showed a recovery that exceeded expectations and expands at an annual 3.9%, which confirms a reversion of the contractions seen in the last two months. However, there is skepticism concerning the industry`s sustained recovery, as global demand remains depressed and the growth of inventories in the manufacturing sector point to barriers that keep production from achieving a sustained recovery. Additionally, the labor market has slightly deteriorated in April, with an increase in the rate of unemployment to 6%, as concerns rise regarding the increase in unemployment among migrants (not included in figures) and augmented pressures in the service sector (which employs 50% of the economy`s workforce). The figures suggest the recovery is slow and could require greater support from fiscal and monetary authorities.

Germany enters a recession

Europe`s largest economy finally entered a recession during 1Q20, after recording a (-) 2.2% contraction, its largest setback in the last decade. The largest falls in the components that make up demand were seen in consumption and investment, affected by the first two weeks of confinement carried out at the end of March. Government spending and construction were able to moderately offset these setbacks. With the restrictions on the movement of persons in April, it`s expected 2Q20 figures will be even more negative. Close to 370 thousand people have lost their jobs in Germany in April alone, and the State has received up to 10 million initial jobless claims. The government has approved close to 1.2 trillion euros to support businesses and families. Even so, the German economy is one of Europe`s economies that has performed best, as other countries such as France, Italy and Spain have confirmed contractions above (-) 5%, while the Eurozone as a whole contracted (-) 3.2% annually in 1Q20, according to revised figures.