The New York Stock Exchange in lower Manhattan. Photo: AFP/Getty Images

With Dow Jones futures down roughly 1,000 points this morning, it appears that investors are pricing in two big risks they ignored in the stock market bounce of the past month. The first is a second wave of Covid-19 infection, and the second is a lasting reduction in the overall level of consumer spending.

Household spending comprises nearly 70% of America’s GDP vs. an OECD average of 60%, and a shift away from consumption to precautionary and retirement savings would depress US economic activity for a long time. 

Unlike East Asia, where public health measures suppressed the Covid-19 pandemic and allowed economic reopening with a degree of safety, the US is restarting its economy while new infections have plateaued rather than fallen.

The New York Federal Reserve’s new Weekly Economic Index, which includes weekly retail sales data from Johnson Redbook as well as the Rasmussen daily poll of consumer sentiment, remains at its low point as of June 6.

The damage is much deeper than during the last Great Recession.

A key component of the Fed weekly index is Johnson Redbook data for year-on-year changes in sales at the same stores (other components include the Rasmussen daily consumer sentiment poll, electricity consumption, freight car loadings, and daily Treasury data on withholding tax collections).

The US Treasury’s daily data for withholding tax collections from employed workers show a step year-on-year drop from April to May, and no improvement in early June. The chart below is published at

Another source of high-frequency data, the Google Mobility indices, shows more activity around workplaces in early June. Google estimates activity using locational data from smartphones.

This corresponds to a rise in mobility in retail and recreation. It appears that the reopening of restaurants and retail stores contributed to the bounce in payroll employment reported for May by the Bureau of Labor Statistics.

But it doesn’t seem to have led to much retail buying at stores. There appears to be some recovery in auto sales, as well as home buying (not surprising with mortgage rates around an all-time low). 

American consumer behavior is notoriously hard to forecast, but there is a strong possibility that all of the stimulus packages and all the king’s horses and king’s men won’t be able to put the consumer economy back together again.

The US may be facing a prolonged period of economic weakness rather than the rapid return to normalcy that the stock market was betting on – until yesterday afternoon.