US Macro: July data likely to show a renewed pullback – So far, the post-lockdown recovery has been swifter than expected in the US, particularly on the consumption side. Indeed, the May data showed private consumption levels at close to 90% of pre-pandemic levels, whereas our base case had assumed consumption would still be in the low-to-mid 80s at that stage. While the initial pace of recovery has been quicker, however, the resurgent pandemic in the southern US states is now leading to a stalling in the recovery, and even a modest pullback in the new pandemic hotspots (most notably in Texas, Florida and California). The data is patchy, but we are seeing the first signs of this in the OpenTable seated dining data. In these states, dining recovered to as high as 46% of 2019 levels in mid-June, but this has since steadily fallen back to around 40% in recent days, and we expect this downtrend to persist in July. For the US as a whole, we are yet to see a perceptible decline, but progress looks to have stalled, with dining stuck at around 40% of 2019 levels over the past week or so. More broadly on consumption, we view some of the May bounce as having been helped by the stimulus checks sent out across the US (even to those who remained in employment), and that some of the consumer discretionary categories that saw particularly strong growth are likely to see declines in the June/July data. A renewed pullback would still be consistent with our base case of a 4.8% contraction in 2020, but for markets that have grown used to a straight line up in activity so far in the recovery, a pullback would likely be an unwelcome surprise. We also see a risk of a negative July payrolls print, with some of the hospitality sector workers in the southern states who had returned to work now at risk of renewed furlough.
Seated dining is falling back modestly in pandemic hotspots
OpenTable seated dining, % yoy
Source: Bloomberg, ABN AMRO Group Economics
Pandemic trends no longer worsening, but still unsustainable – Meanwhile, Covid-19 hospitalisations continue to grow unsustainably in the US, although the most recent data at least suggests that growth has stopped accelerating. For instance, daily growth in Texas has slowed to 5.2% (7-day average), down from a peak of 7.9% in late June. We estimate Texas hospitals will run out of spare capacity by the end of July if current growth rates persist, although further measures could be taken to increase that capacity (such as stopping elective surgeries in other parts of the state, as has already happened in Houston and other urban areas). Overall hospitalisations in the US are growing at a more manageable 2-2.5% pace, and this pace has been maintained for the past two weeks. It remains to be seen whether the measures taken in the pandemic hotspots (such as closing bars and reducing restaurant capacity) will be enough to not only stall the acceleration but to put a stop to the unsustainable growth in cases; should hospitalisations fail to decelerate in the coming weeks, further steps could be taken to reimpose restrictions. A return to full lockdowns is not in our base case, however we expect social distancing rules to remain in place at least into next year, and this is likely to keep activity well below potential. (Bill Diviney)