Retail Sales And Housing Starts In June Reveal Recovery's Shape

Published Friday, July 17, 2020, 8:30 p.m.

Amid bad news about the Covid crisis, two encouraging signs appeared last week on the economic horizon: retail sales and housing starts.

For the 12 months ended June 30, 2020, retail sales rose +2.7%.

For the 12 months ended April 30, retail sales revenue had plunged by 18.1%. In the 12 months ended May 31, retail sales rebounded but were still -2.4% lower than they had been a year earlier.

By the end of last month, retail sales fully recovered, rising by +2.7% from 12 months earlier.

To be clear, retail sales for the 12 months through June were back on track with the long-term growth path they had been on before the Covid outbreak.

While the bad news on the spread of the virus in recent days may dampen retail sales in the weeks ahead, the shape of the recovery in retail sales is likely to remain near a "V." A V-shaped recovery is about the best outcome you could get after a financial crisis. It's the quickest way to a return to normalcy.

Calculated by the U.S. Census Bureau month, retail sales are a key economic metric because they reflect consumer spending trends. Retail sales account for 29% of gross domestic product; total consumer spending accounts for 70% of GDP.

The other encouraging economic sign this past week was in the data on housing starts.

At nearly 1.2 million housing starts in June, a second month of breakout gains made this recovery from the virus crisis different from the last recovery.

The post-Covid surge in housing starts contrasts with the period following the global financial crisis of 2008. The Covid crisis is not perceived the same way as the financial crisis of 2008. Housing starts are close to where they have hovered for most of the past five years.

Housing starts is an important financial metric because it affects activity in employment, consumer purchases of big-ticket durable goods as well as real estate values.

07/17/2020 closing number: 3,224.73

The Standard & Poor's 500 (S&P 500) index gained 1.24% this past week. Closing higher for the third week in a row, the index closed Friday at 3,224.73, which is 36.15% from the March 23rd bear market low. Stock prices have swung wildly since the crisis started in March and volatility is to be expected in the months ahead.

Assets invested for life need not be unduly influenced by the near-term risk of the virus crisis, but the volatility is creating tax opportunities for some investors, especially individuals subject to required minimum distributions on qualified retirement accounts, such as IRAs and 401(k)s.

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