ADVANCE MONTHLY SALES FOR RETAIL AND FOOD SERVICES, OCTOBER 2020
Advance estimates of U.S. retail and food services sales for October 2020, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $553.3 billion, an increase of 0.3 percent (±0.5 percent)* from the previous month, and 5.7 percent (±0.7 percent) above October 2019.
Total sales for the August 2020 through October 2020 period were up 5.1 percent (±0.5 percent) from the same period a year ago. The August 2020 to September 2020 percent change was revised from up 1.9 percent (±0.5 percent) to up 1.6 percent (±0.3 percent).
Retail trade sales were up 0.3 percent (±0.5 percent)* from September 2020, and 8.5 percent (±0.7 percent) above last year. Nonstore retailers were up 29.1 percent (±1.6 percent) from October 2019, while building material and garden equipment and supplies dealers were up 19.5 percent (±2.3 percent) from last year.
Little sign of worsening layoffs (so far)
In a sign of what may be to come, our survey found a slight upturn in the number of workers that said they were temporarily furloughed or laid off from work. And 8% of those surveyed said their employer shut down business completely — the biggest share since August.
Data: Axios/Ipsos poll; Chart: Andrew Witherspoon/Axios
October marked the lowest number of layoffs in seven months, as U.S.-based employers announced plans to cut 80,666 jobs from their payrolls, according to a report released Thursday by global outplacement and business and executive coaching firm Challenger, Gray & Christmas, Inc.
October’s total is 32% lower than the 118,804 cuts announced in September. It is 60% higher than the 50,275 cuts in the same month last year. October’s total is the lowest since February, when 56,605 cuts were announced.
So far this year, 2,162,928 job cuts have been announced, 320% higher than the 515,144 cuts announced through October last year. It is the highest annual total on record.
How meaningful? Demand Downturn cut 25,281 jobs in October. August and September together totalled 5,461.
A Morning Consult survey shows that 45% of Americans plan to spend less on gifts this year, up from 39% in early September.
US holiday spending on par with last year Despite COVID-19, holiday shoppers intend to spend about the same dollar amount as last year ($673, on par with 2019’s $675), according to an estimate from The Conference Board.
Hundreds of Firms That Got Stimulus Aid Have Failed Many of the companies say the funds from the Paycheck Protection Program weren’t enough to keep them going as the coronavirus and lack of additional stimulus payments weighed on their businesses.
About 300 companies that received as much as half a billion dollars in pandemic-related government loans have filed for bankruptcy, according to a Wall Street Journal analysis of government data and court filings.
Many of the companies, which employ a total of about 23,400 workers, say the funds from the Paycheck Protection Program weren’t enough to keep them going as the coronavirus and lack of additional stimulus payments weighed on their businesses.
The total number of companies that failed despite getting PPP loans is likely far higher. The Journal only analyzed the big borrowers from the program, which accounted for about half of the overall loans though only about 13.5% of the total participants. And many small businesses simply liquidate when they run out of cash rather than file for bankruptcy. (…)
New International Student Enrollment Falls 43% The number of new international students at U.S. campuses plummeted by 43% this fall, according to an early snapshot that illustrates just how hard colleges and universities were hit by the pandemic and a flurry of confusing directives from the Trump administration.
America Locks Down From Atlantic to Pacific With Covid Raging
California on Monday reinstituted bans on many indoor businesses across the state, and its governor warned he may impose a curfew. Michigan has ordered a three-week partial shutdown, while states including Oregon, Washington and New Jersey tightened curbs. Even the governor of Iowa, long resistant to virus rules, issued a limited mask mandate Monday. (…)
“The whole country is on fire,” said Ellie Murray, assistant professor of epidemiology at the Boston University School of Public Health. “Since people can be infectious before they have symptoms, a lot of people right now are infectious and transmitting to people and don’t know it. We’re trying to get a grip on this large explosion.” (…)
“The rate of increase is simply without precedent in California,” Governor Gavin Newsom said Monday during a briefing. “Every age group, every demographic — racial, ethnic — in every part of this state, we are seeing case rates increase.”
The state, home to about 40 million residents, enacted tight restrictions on counties totaling 94% of its population, including shutting indoor dining, gyms, places of worship and theaters. (…)
In New York City, officials are prepared to close schools if its citywide rate of positive tests reaches a seven-day average of 3%. As of Monday, it stood at 2.77%. (…)
U.S. Hospitalizations Reach New Record
Data: Axios-Ipsos poll (±3.1% margin of error for November, ±3.3% for October). Chart: Andrew Witherspoon/Axios
BofA Says Market Is So Bullish It’s Time to Sell on Vaccine News
(…) The monthly survey, conducted Nov. 6 through Nov. 12 saw investor optimism about stocks skyrocket, with allocation jumping to the highest level since January 2018. Cash holdings plunged to the lowest level since April 2015, while economic growth expectations surged to a 20-year high. Investors snapped up more volatile assets, such as small-caps, value, banks and emerging-market stocks, while shifting away from bonds and staples.
“Reopening rotation can continue in the fourth quarter but we say ‘sell the vaccine’ in coming weeks or months as we think we’re close to ‘full bull,’” said BofA strategists led by Michael Hartnett in a Tuesday note. With investor optimism on stocks increasing sharply, a “topping process gets underway,” they said.
Allocations to equities in November rose to net 46% overweight, close to “extreme bullish,” according to BofA. Hedge funds also maintained a high exposure to stocks, at 41%. (…)
Fund managers also haven’t been this optimistic in their global profit expectations since 2002. (…)
Meanwhile, short interest on the S&P 500 is at its lowest level since 2004.
Warren Buffett Likes Stocks Again His Berkshire Hathaway made the biggest outlay for equity purchases in a year in the latest quarter. Investors may be happy to see the Oracle getting back in buying mode.
(…) A filing late Monday showed that in the latest period Berkshire Hathaway bought a handful of U.S. pharmaceutical giants: AbbVie Inc., Bristol-Myers Squibb Co., Merck & Co. and Pfizer Inc. It also purchased a new stake in T-Mobile US Inc., the wireless carrier with the most enviable spectrum position heading into 5G, and Snowflake Inc., one of the hottest tech IPOs of the year. They’re part of the net $4.8 billion Berkshire spent buying equities during the period; it spent an additional $9 billion buying up its own shares. (…)
Berkshire continued its banking purge — further reducing its stakes in JPMorgan Chase & Co., PNC Financial Services Group Inc. and Wells Fargo & Co. It also exited a $1.3 billion position in Costco Wholesale Corp. (…)
Global M&A recovers on vaccine hopes and US political stability Companies announce $40bn of deals in one day as executives put cheap debt and cash piles to work
Tesla to Be Added to S&P 500 Index Tesla will join the S&P 500 index on Dec. 21, S&P Dow Jones Indices said in a statement.
At almost $390 billion in value, Tesla would be the biggest company ever added to the benchmark. Pushing it all in at once would force index-tracking funds into serious contortions — they’d need to sell upwards of $40 billion of shares in other constituents to make room, by some estimates. As a result, the index’s overseer, S&P Dow Jones Indices, is considering doing it in stages. (…)
About $11 trillion of investment assets are either tied or benchmarked to the S&P 500.
Given its heft, Tesla would likely be among the top 10 largest stocks in the S&P 500, falling somewhere between Johnson & Johnson and Procter & Gamble Co., with a weighting of more than 1%. That would equal the combined value of the 60 smallest stocks in the benchmark. (…) The company Tesla replaces will be named later. (…)
America’s Zombie Companies Have Racked Up $1.4 Trillion of Debt
From Boeing Co., Carnival Corp. and Delta Air Lines Inc. to Exxon Mobil Corp. and Macy’s Inc., many of the nation’s most iconic companies aren’t earning enough to cover their interest expenses (a key criterion, as most market experts define it, for zombie status).
Almost 200 corporations have joined the ranks of so-called zombie firms since the onset of the pandemic, according to a Bloomberg analysis of financial data from 3,000 of the country’s largest publicly-traded companies. In fact, zombies now account for nearly 20% of those firms. Even more stark, they’ve added almost $1 trillion of debt to their balance sheets in the span, bringing total obligations to $1.36 trillion. That’s more than double the roughly $500 billion zombie companies owed at the peak of the financial crisis. (…)
Yet the sheer amount of borrowing undertaken by struggling corporations in recent months will almost certainly limit the capacity of some to make capital expenditures and adapt to shifting consumer habits as Covid-19 alters how Americans spend their money. (…)
More than a sixth of the [Russell 3000] index, or 527 companies, haven’t earned enough to meet their interest payments. That compares with 335 firms at the end of last year. The $1.36 trillion they collectively now owe dwarfs the $378 billion of debt zombie firms reported before the pandemic laid waste to balance sheets. (…)
But new research from the Bank for International Settlements shows that zombies may be even more damaging to an economy than previously thought.
Not only are firms staying in a zombie state for longer than in years past, but of the roughly 60% of firms that do manage to ultimately exit zombie status, many nonetheless experience prolonged weakness in productivity, profitability and growth, leading to long-term underperformance.
Moreover, recovered firms are three-times more likely to become zombies again compared to firms that have never been one, according to the September study, which examined companies in 14 advanced economies over three decades.
“The zombie disease seems to cause long-term damage also on those that recover from it,” the BIS’s Ryan Banerjee and Boris Hofmann wrote in the report. Therefore, “a firm’s viability should be an important criterion for its eligibility for government and central bank support.” (…)
Some say the concern over the spread of zombie companies is being over-hyped.
While they accounted for 41% of U.S. firms in a UBS Group AG analysis based on their interest-coverage ratios as of the second quarter, weighted by assets the percentage declined dramatically, to just 10%. And when using the bank’s preferred methodology, which looks at debt to enterprise value, the share fell to just 6%, close to average levels since the late 1990s.
“The zombie problem is fairly benign in the U.S.,” said Matthew Mish, a strategist at UBS. “I don’t think the problem looks any worse than the last two recessions.” (…)
Tech War With U.S. Turbocharges China’s Chip-Development Resolve China is investing heavily in computer chips and stepping up efforts to cultivate homegrown talent as it accelerates its quest for technological self-sufficiency amid a tech trade war with the U.S.
Chinese semiconductor companies have raised the equivalent of nearly $38 billion so far this year through public offerings, private placements and asset sales, according to S&P Global Market Intelligence—more than double last year’s total. (…)
“Companies without experience, technologies and talents have rushed into the integrated circuit sector,” a representative of the National Development and Reform Commission said last month. “Some local governments also blindly started projects with inadequate understanding of the industry.” (…)
China is the world’s largest importer of semiconductors. Customs data showed it bought more than $300 billion worth of foreign-made chips last year.
Chinese firms supply only 5% of the world-wide market, according to the Washington-based Semiconductor Industry Association. Chinese chips are also far less advanced, lagging their Taiwanese and U.S. peers by five years or more, experts say. (…)
Last month, in an economic blueprint setting out priorities for the next five and 15 years, Chinese authorities formally elevated “self-reliance” in technology to the level of a key national goal.
President Xi Jinping, in a speech last week, called for accelerating the development of critical industries including semiconductors. (…)
Universities are prioritizing programs dedicated to training a new generation of semiconductor experts, seeking to address an industry shortfall that will top 250,000 skilled workers by 2022, according to state media reports citing a 2019 white paper by a government-backed think tank.
In July, China’s cabinet raised the status of university degrees tied to semiconductors, promising more funding and prestige. Meantime, China’s elite Peking, Tsinghua and Fudan universities have started to channel additional resources into their semiconductor programs. (…)
Huawei, in a statement, said cutting off its access to U.S. technology has “damaged the global semiconductor industry” and “led to a growing ‘de-Americanization’ of supply chains around the world.”
This year, six Chinese provinces and regions pledged to invest the equivalent of about $13 billion in semiconductors, according to state media and government statements. (…)
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Major Chinese Chip Company Defaults on Debt Ratings firm downgrades Tsinghua Unigroup after failure to repay maturing bond
Tsinghua Unigroup Co., a key player in China’s push for self-reliance in semiconductors, has defaulted on a bond, adding to a recent spate of trouble in the country’s corporate debt markets. China Chengxin Credit Rating Group said late Monday that Unigroup was in default on the privately placed domestic bond, worth 1.3 billion yuan, equivalent to $197 million. The ratings company said Unigroup had failed to reach agreement with creditors to extend the repayment deadline.
Chengxin cut Unigroup to triple-B—a grade that signals a high degree of risk in the Chinese credit-rating system—and said the default could trigger cross-defaults on some other Unigroup debt. Unigroup didn’t respond to requests for comment.
The financial difficulties are striking for a company which in 2015 made headlines with a $23 billion bid for U.S. memory-chip maker Micron Technology Inc., and which has enjoyed huge state backing. Last year, an Organization for Economic Cooperation and Development study of 21 global semiconductor companies ranked Unigroup top for government support. (…)
Unigroup is 51% owned by Tsinghua Holdings, a company controlled by Tsinghua University in Beijing. The other 49% stake is owned by a company controlled by Zhao Weiguo, Unigroup’s chairman. (…)
Kissinger Warns Biden of U.S.-China Catastrophe on Scale of WWI
Former U.S. Secretary of State Henry Kissinger said the incoming Biden administration should move quickly to restore lines of communication with China that frayed during the Trump years or risk a crisis that could escalate into military conflict.
“Unless there is some basis for some cooperative action, the world will slide into a catastrophe comparable to World War I,” Kissinger said during the opening session of the Bloomberg New Economy Forum. He said military technologies available today would make such a crisis “even more difficult to control” than those of earlier eras.
“America and China are now drifting increasingly toward confrontation, and they’re conducting their diplomacy in a confrontational way,” the 97-year-old Kissinger said in an interview with Bloomberg News Editor-in-Chief John Micklethwait. “The danger is that some crisis will occur that will go beyond rhetoric into actual military conflict.” (…)
“Trump has a more confrontational method of negotiation than you can apply indefinitely,” Kissinger said. (…)
The swift erosion in ties this year means China and the U.S. are edging toward a new Cold War, Kissinger said, adding that the two sides should “agree that whatever other conflict they have, they will not resort to military conflict.” (…)
Reviewing some of Biden’s proposals for addressing China, Kissinger urged caution when asked about the idea of building a coalition of democracies to take on Beijing.
“I think democracies should cooperate wherever their convictions allow it or dictate it,” he added. “I think a coalition aimed at a particular country is unwise, but a coalition to prevent dangers is necessary where the occasion requires.”
Ultimately, Kissinger said, the two nations’ leaders need to recognize that they see the same issues very differently, and that colors their approach to talks.
“Americans have had a history of relatively uninterrupted success,” he said. “The Chinese have had a very long history of repeated crises. America has had the good fortune of being free of immediate dangers. Chinese have usually been surrounded by countries that have had designs on their unity.”
Europe will increasingly find itself caught in a tug-of-war between the U.S. and Eurasia, Kissinger added. (…)
Trump to Saddle Biden With Last-Minute Flurry of Policy Moves President Donald Trump is rushing to leave his final mark on energy, financial and foreign policy while stalling the transition to President-elect Joe Biden — who warned that further delays in the handoff risk increasing the coronavirus death toll.
(…) The outgoing administration’s aggressive rear-guard tactics go well beyond past last-minute actions undertaken by parties about to lose control of the White House. Major decisions, involving both domestic and foreign policy, are in the works that Trump and his aides know Biden opposes. (…)
China, too, is facing additional U.S. hostility before Trump leaves office. His national security advisor, Robert O’Brien, said last week that the administration is preparing new sanctions over the Communist Party’s clampdown on opposition politicians in the former British colony of Hong Kong.
(…) administration officials have signaled more severe punishment now that Trump is leaving office.
Sanctions singling out China’s leaders would infuriate tthe government of President Xi Jinping and bring ties between the two nations to their lowest point in decades. Biden would struggle to clear such a toxic atmosphere as he seeks to cooperate with China in areas, such as climate change, that the Trump administration neglected. (…)
The Trump administration has also proposed nearly two dozen new rules, including measures that would make it harder to impose new environmental safeguards. Those regulations would – at the very least – require the Biden administration to devote significant time and resources to unwind.
And without control of the Senate, congressional Democrats would likely be unable to erase any last-minute Trump regulations under the Congressional Review Act, used to great effect by Republicans after Trump took office in 2017. (…)