August 20th, 2021
After hitting another all-time high on Monday, the Dow Jones Industrial Average ended the week down -1.11%. Rising concerns over slowing global growth as Delta variant cases spiked around the world along with weak U.S. consumer spending and housing starts managed to knock the Dow Jones Industrial Average from its peak. Disappointing data from China served to temper optimism for a global growth revival as the country reported retail sales and factory output slowed sharply month-to-month in July. In the U.S., retail sales disappointed as purchases dipped due to global supply constraints in the auto market and as consumers grew increasingly cautious in late July. The housing market, which had been a bright spot throughout much of the pandemic, struggled to make gains as surging costs prompted builders to hold off on breaking ground on new homes.
Delta Surge Throws Cold Water on Consumer Spending
Summer started off strong as consumers took their long delayed 2020 vacations, hitting up their favorite hotels, restaurants and bars. Unfortunately, the spending came to an abrupt end as a surge in delta variant cases towards the end of July prompted consumers to rein in their purchases. Month-to-month, retail sales fell -1.10%, worse than the -0.30% decline economists had forecasted. The drop was broad-based with motor vehicle sales leading the declines, falling -4.30%. The car lot has had a tough time keeping cars in stock due to a global chip shortage, which has led to fewer cars rolling off the assembly line. Supply looks like it will remain tight for the time being as more automakers move to idle plants. Toyota, who had been largely immune to the chip shortage until late, announced this week it would cut production. It is anticipated that this will lead to a 40% hit in their supply next month. The back-to-school shopping season also appeared to be off to a slow start as sales at online retailers fell -3.10%. Parents appear to be more cautious in opening their wallets ahead of an uncertain school year, sending sales at clothing and sporting goods stores down -2.60% and -1.90%, respectively. Restaurants and bars still managed to eke out a 1.70% gain due to the head start they had from the beginning of the month. Yet, that growth figure was lower than June’s 2.40% rise, reflecting diminishing marginal growth. Moreover, we have yet to see the full extent of the drop in July consumer spending given that the retail sales report excludes many service categories such as airline ticket sales which have reported a decline as more travelers move to cancel their late summer travel plans.
Supply Constraints Prompt Homebuilders to Drop Their Hammers and Nails
Folks seeking new homes will be disappointed to know that builders are slowing their construction pace. Amid unrelenting supply constraints, housing starts fell -7.00% to a seasonally adjusted annual rate of 1.534 million units in July. The decline was driven primarily by a -13.10% drop in multi-family starts. Meanwhile, single-family starts posted a smaller decline, falling a more modest -4.50%. Building permits for future construction, however, did manage to rebound after three straight monthly declines, rising 2.60% in July. The increase was driven by an 11.20% jump in multi-family projects which more than offset the -1.70% drop in single-family permits. The rise in permits for the multi-family segment reflects a rebound in demand for rentals as the economy reopens, renters look to return to busy city centers, and as housing prices have put home purchases out of reach for some buyers. Single-family starts idled in July with the number of houses authorized – but not started for construction – holding at 145,000 units. That was the third highest on record, indicating builders remain hesitant to undertake new projects amid high land, labor, and materials costs.
Despite the week’s pullback, the Dow Jones Industrial Average continues to trade near its all-time high. Although disappointing economic data and a surge in Covid cases renewed concerns over slowing growth, the macro forces are such that investors remain confident. Friday’s trading session for instance seemed to bring dip buyers back into the market, with the index rallying 225+ points. Some of these macro forces may soon begin to change, however. Just this week the Fed minutes from its July meeting were released, indicating that the Fed is warming to the idea of tapering. The Delta surge may complicate the timeline somewhat, but the central bank appears to be adopting a tightening bias and no matter how clearly they may communicate that message, markets never seem to be happy when it actually happens.
The Week Ahead
It will be another big week for the real estate market with data on existing and new home sales. We’ll also get the latest figures on personal income and spending.
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Good Boy
Throughout history, there have been accounts of canines aiding humans, so it’s fitting that Thursday, August 26th is International Dog Day that celebrates man’s best friend. Archaeological evidence found in Germany and dating back to the Paleolithic era around 14,000 years ago shows a domesticated and well cared for canine pet. The first known example of a guide dog for a blind person was depicted in a first-century Roman mural. In medieval times, dogs helped humans with herding, guarding, and hunting. Today, dogs not only offer companionship, but have been trained to serve so many additional purposes, from detecting diseases to helping individuals with a wide array of conditions that include visual or hearing impairments, psychological challenges, epilepsy, and multiple sclerosis.
A bill passed by Congress earlier this month paves the way for trained service dogs to help veterans suffering from post-traumatic stress disorder (PTSD). Versions of the legislation have been introduced in Congress in previous years but have failed to become law. However, this past March, the Veterans Administration released the results of a nearly decade-long study that demonstrated that dogs can significantly mitigate the symptoms of PTSD, which is sometimes known as shell shock or combat stress and occurs after experiencing or witnessing severe trauma or a life-threatening event.
PTSD-trained service dogs learn a range of tasks, such as standing in front of or behind their handler to fend off crowds or approaching people. They also may wake a person from a nightmare, “sweep” a room before their handler enters, or turn on lights. If a veteran is feeling anxious, a command such as “snuggle” will bring the dog in for a big hug. Hugs – even those from furry friends – trigger the release of oxytocin which lowers blood pressure and improves heart health and are proven to make us healthier and happier. The dogs learn how to mitigate situations that trigger symptoms of PTSD and help with feelings of isolation or sadness that are part of the disorder.
Service dogs have been able to learn to help children on the autism spectrum as well. They can be trained to help prevent harmful reactions such as panic or a meltdown when there’s too much stimulation or other triggers, such as anxiety or stress. Dogs can be trained to respond by leaning into the child or laying across their lap.
Therapy dog visits have been shown to help patients experiencing chronic pain. In as little as twelve minutes, researchers found that these visits significantly reduced self-reported pain, fatigue, and emotional distress. Therapy dogs can reduce cortisol, the stress hormone, and boost endorphins, the body’s natural painkillers.
In addition to being highly observant, dogs have been trained to use their keen sense of smell. They been used to search for drugs and explosives, locate missing people, and find crime scene evidence. Dogs have up to 300 million olfactory receptors while humans have six million. Additionally, the part of a dog’s brain that is devoted to analyzing smells is about 40 times greater than it is in humans. Dogs can detect substances at concentrations of one part per trillion – a single drop of liquid in 20 Olympic-sized swimming pools.
In diabetic patients, dogs are able to detect a blood sugar imbalance 15 or 20 minutes before the person’s monitoring devices, giving the individual crucial extra time to respond. Dogs have been trained to sniff out many types of cancer and have been used in hospitals to detect clostridium difficile, a superbug that is resistant to antibiotics.
Over the past year, programs all over the world have been launched to successfully train dogs to sniff out Covid-19 with some researchers and trainers reporting a sensitivity as high as 100% – meaning the dog never misses a positive sample. The results are superior to some antigen tests. Sniffer dogs have been used to detect Covid in nursing homes, airports, and hospitals. The Miami Heat announced in January that they would be using coronavirus-sniffing dogs at their games. Many researchers hope that Covid-19-sniffing dogs can complement conventional diagnostic tools and prevention efforts to help in the fight against the virus. Doctor dog to the rescue.