Tepid retail sales and a stimulus impasse held down stocks as markets closed the week on a down note.
MANHATTAN (CN) — Markets wrapped up the week on a slightly negative note Friday as the Senate packed its bags and retail sales were half of what analysts expected.
All three of the major U.S. indices barely inched above their stating points throughout the day, with the Dow Jones Industrial Average gaining just 0.1% by the closing bell. The S&P 500 and Nasdaq both ended the day’s trading slightly below 0%.
Some on Wall Street had hoped positive retail sales numbers could goose investors. While retail sales rose for the third straight month, they did so at a lesser clip than many economists had predicted. According to the Census Bureau, retail sales increased 1.2% last month, compared with nearly double the increase many economists had expected.
The lackluster increase in retail sales “underscores that wary consumers have turned more cautious amid a virus resurgence and fading stimulus support,” and suggests many consumers “are likely to keep a tight rein on their spending until a medical solution to the pandemic is found,” wrote Lydia Boussour, a senior economist at Oxford Economics.
Most individual sales categories saw month-over-month gains, though building materials and auto sales both fell, by 2.9% and 1.2%, respectively.
The rise in spending was even greater in June, when it increased by 8.4%, while in May it had skyrocketed up 18.3%. Retail sales fell precipitously in March and April, dropping 8.2% and 14.7%, respectively.
Meanwhile, hopes were once again dashed that Congress would agree on a fourth stimulus package.
Republicans and Democrats have been deadlocked over a relief bill, with the former wanting to keep the package at no more than $1 trillion while the latter wants at least $2 trillion in additional benefits.
Some of the hold-up has been over how much in aid to provide to state and local governments. Some Republicans have accused Democrats of using the stimulus bill as a way to fund states that were in dire fiscal straits before the pandemic. Democrats say the recession will deepen if states and localities are allowed to hemorrhage money.
During a Friday webcast, Jason Furman, an economics professor at Harvard University, said that for every $1 in aid to state and local governments, the overall economy makes back $1.70. “There is nothing that economists have studied better and more carefully when it comes to fiscal policy multipliers than state and local assistance,” said Furman, who chaired President Obama’s Council of Economic Advisers.
Mark Zandi, chief economist at Moody’s Analytics, said that states and municipalities have already shed more than 1.3 million jobs and could lose “several million” more if no aid is provided. “This is tried and true economic support,” Zandi said during the webcast. “It’s pretty much a slam dunk, pretty straight forward kind of economic policy.”
Some are suggesting the fight could drag out into September, as the Senate finished its session and are not planning on returning to Capitol Hill until next month. However, waiting too much longer could worsen the recession.
“The time to have done this was three months ago. The second-best time to do this is now,” Furman said.
In a tweet, President Trump blamed Democrats for the impasse. “I am ready to send more money to States and Local governments to save jobs for Police, Fire Fighters, First Responders, and Teachers,” the president tweeted. “DEMOCRATS ARE HOLDING THIS UP!”
Last weekend Trump had signed executive orders to extend unemployment benefits, but it remains unclear how much authority he has to do that. Further, the extension would require states to foot some of the bill.
Consumers have been unmoved by the president’s executive action and have remained far more pessimistic than investors during the downturn. According to an analysis by the Morning Consult, consumer sentiment has flatlined over the last two months while the S&P 500 has increased.
The persistence of coronavirus also hasn’t helped markets. During a panel hosted on Thursday by National Geographic, Dr. Anthony Fauci said data from some states suggest more surges in Covid-19 are to come. “We are certainly not where I hoped we would be,” Fauci said during the event.
According to data compiled by Johns Hopkins University, nearly 21 million have contracted Covid-19 worldwide, while roughly 761,000 have died. In the United States, more than 5.2 million have been confirmed infected while more than 167,000 have died.