Let’s start with the jobs market.
Payroll employment (left chart) cratered due to the lockdown but has started to rebound modestly. The unemployment rate increased to a post-Great Depression high as a result (right chart). That has since come down but it is still very high.
As a result of the lockdowns, the labor force participation rate (left chart) and the employment/population ration (right chart) have dropped sharply as well. Both charts indicate the US economy’s use of labor is very inefficient.
Unfortunately, the pace of layoffs is still high…
…which will weigh on job growth prospects.
Without unemployment aid, income would have collapsed:
The top blue line shows total income, which is now modestly higher than it was prior to the lockdowns. The green line shows that total income dropped but that unemployment (in red) made-up the difference.
Another way to look at wage data is the average hourly earnings of private employees. The above chart shows that the Y/Y percentage change rose, but again, that’s due to the stimulus measures.
Here’s the same data in the linear form:
So, the jobs market is starting to rebound and, thanks to federal transfer payments, incomes didn’t collapse. As a result, consumer spending, which accounts for about 70% of US growth, has bounced back.
Retail sales are again growing on a Y/Y basis, and…
…all three areas of personal consumption expenditures are up on a M/M basis.
This data explains the rally in the two main consumer ETFs:
Consumer staples have rebounded from their Spring sell-off and are now at 1-year highs. The chart is solid: all the EMAs are rising with the shorter EMAs above the longer EMAs. Consumer staples are on my buy list.
The consumer discretionary sector is just off a yearly high. This chart is also strong technically.
Going forward, there are two areas of concern:
1.) The pace of job creation. The quick rebound over the last few months is the result low hanging fruit; companies that temporarily shutdown reopened, and, as a result, brought back their employees. However, expect the pace to slow going forward. A number of large retailers have declared bankruptcy while some states have re-imposed partial shutdowns. Also, the pandemic probably accelerated certain changes in the composition of the US employment picture. For example, expect the pace of automation to increase.
2.) Federal aid: the charts above show federal spending plugged the gaps caused by the sharp drop in employment. That help ran out last week. The executive orders may or may not help; their status is “to be determined.” Without a second package, expect consumer spending to drop.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.