Data Deluge Shows Uneven Progress in U.S. Economic Recovery
(Bloomberg) -- A smorgasbord of U.S. data on the eve of the Thanksgiving holiday showed lingering signs of both strain and strength in an economy trying to escape the clutches of the coronavirus.
The number of people applying for state unemployment benefits unexpectedly increased in consecutive weeks for the first time since July, Americans’ income declined more than forecast in October and consumer sentiment dipped to a three-month low. At the same time, the consumer remains healthy, powering the housing market and manufacturing demand.
In sum, the data are consistent with a solid, yet moderating pace of the economic growth approaching the end of a tumultuous year for Americans and one that will challenge the Biden administration in early 2021.
“It’s like economic momentum versus the pandemic,” said Michael Gapen, chief U.S. economist at Barclays Plc. “The pandemic is likely to spoil things in the coming months and make the outlook a little more choppy, but that’s right at the time when we expect vaccines to arrive.”
While household savings remain elevated and certain sectors show resilience, soaring infection rates threaten to stymie the recovery’s progress should they lead to a broad setback in the labor market.
Hanging in the balance is the holiday-shopping season, the busiest time of the year for the nation’s retailers. With consumers cutting back on service-related spending as the pandemic forces many Americans to reduce travel, event attendance and meals out, retailers are hoping they redirect their dollars to more gift purchases.
The economy will certainly benefit from a vaccine for Covid-19, which would boost prospects for the hardest-hit industries. Yet, despite the recent favorable news surrounding trials and efficacy of vaccines in development, widespread distribution could take months even if a program is started as early as next month.
At the same time, millions of unemployed and small businesses in tenuous financial situations are stuck with a Congress that’s shown little urgency in cobbling together more fiscal relief. Without congressional action, two pandemic jobless benefit programs are set to expire at the end of December, affecting an estimated 12 million people.
“Stimulus is needed to keep the economy and the recovery on track,” said Joel Naroff, president and chief economist at Naroff Economics LLC. “And it’s not happening and I don’t think it’s going to happen before the new administration takes over.”
Personal incomes in October fell 0.7%, a larger decrease than forecast, owing in large part to a decline in the supplemental benefit payments authorized by President Donald Trump in August. The Commerce Department’s report also showed spending increased 0.5% after a 1.2% advance.
What Bloomberg Economics Says...
“Coupled with intensifying expiration of unemployment benefits and in the absence of a meaningful fiscal aid package, further declines in personal income will limit growth in personal spending until the labor market is firmly on the mend.”
-- Yelena Shulyatyeva and Andrew Husby, economists
For the full note, click here
Until then, housing and manufacturing have the potential of providing additional fuel for the economy. New-home sales hovered around the 1 million mark in each of the last three months on an annualized basis, the strongest since 2006 and indicating increased construction through early 2021.
Meantime, orders placed with U.S. factories for durable goods rose more than forecast in October and signaled still-solid business equipment spending at the start of the fourth quarter.
Shipments of core capital goods, which help form estimates for a portion of U.S. gross domestic product, climbed 2.3% from the prior month, the strongest reading since July and above all forecasts.
“The continued weakness of the labor market is something that is going to drive the whole economy down,” Catherine Mann, global chief economist at Citigroup Inc., said on Bloomberg Television. At the same time, solid sectors like manufacturing are “going to keep us from being in official recession, but it’s going to be very grim,” she said.
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