- Policy focus in the coming weeks will be on the health of the American people and support for the U.S. economy. The elevated unemployment claims indicate the need to build on policy momentum.
- Still, not everything is in distress. Housing, a very important sector for the economy, continues to surprise on the upside, and forward-looking indicators imply the current level of activity has staying power.
- Manufacturing data suggests machines will stay warm this winter despite a stop-go pattern in the people-sensitive services side of the economy.
On Wednesday, Joe Biden was sworn in as the 46th president of the U.S. Not surprisingly, he has already stirred up a mix of policies in order to strengthen the health of the American population and the U.S. economy.
With Democrats winning the two Georgia Senate runoff races, his party will hold a "soft" 50-vote majority in the Senate and will continue to hold its majority in the House of Representatives. This will likely give him more leverage in achieving some of his goals.
With COVID-19 infections, hospitalizations, and deaths surging to new highs almost daily since November, the U.S. is in the midst of a difficult stretch (see more in "U.S. Real-Time Data: COVID-19 Is Still Calling The Shots," Jan. 15, 2021). Even with vaccinations now underway, it won't be until the health crisis is resolved that the economy will finally return to some semblance of normalcy.
As we expected, President Joe Biden came out of the gate with an aggressive agenda to stabilize the health of the American population and the U.S. economy. Before he took office, he announced a $1.9 trillion stimulus package, the American Rescue Plan, which is on top of his first 100-day agenda.
In addition, he hinted that a second package of longer-term policy solutions--such as infrastructure and climate--is in the works (likely to be announced sometime in February). At the end of December, we also saw a $935 billion deficit spending signed into law, which extended lifelines to the unemployed through March and additional support to businesses. Before December, total fiscal stimulus amounted to around $3 trillion (about 14% of GDP in 2019) in 2020, and now at the start of 2021, the economy is looking at a potential $2.8 trillion (about 13% of GDP in 2019) of additional government support sent to various groups hit hard by the pandemic.
A lingering risk to our growth forecast has been premature austerity as policy fatigue sets in. The December agreement likely pushed the risk of recession down from what was near the top of 25%-30% in early November (see "U.S. Business Cycle Barometer: Still Signs Of Life," Nov. 2, 2020), and the additional support, as proposed by the president, will further minimize dislocations in the economy.
The Democratic majority in both houses (albeit a slim one) gives President Biden more leverage in pushing through his policy objectives, including additional stimulus (see more in "Georgia Gains Give Biden A Legislative Leg Up; The Pandemic And Economy Are First Priorities," Jan. 7, 2021). Still, promises are not policies. President Biden will need to coax deficit fatigued lawmakers to agree to his plan.
Some key provisions in the president's new stimulus package include sending $1,400 checks to qualifying households on top of the $600 checks issued under the December bipartisan relief bill, increasing unemployment "booster" benefits (to $400 from $300 in the December bill) and extending its duration (through September from March 14), providing aid to state and local governments, supporting a national vaccination program, and helping schools to reopen and operate safely.
Eviction moratoriums have already been extended through March, and student loan payments (including interest accrual) have been paused through September 2021 through executive action on the first day in office. A stimulus package, if enacted (needs Congressional signoff), would likely give the U.S. economy extra support this year as the fight to contain the virus wages on, with substantial upside to our projection of 4.2% real GDP growth for 2021. With a Democratic-controlled congress, President Biden's American Rescue Plan is likely to send the U.S. economy back to pre-COVID-19 levels sooner.
Elevated Unemployment Claims
It will be important for the new administration to continue building on the policy momentum in order to minimize distress in the economy. Nowhere is this elevated distress more evident than in the unemployment claims data.
Last week, initial claims--a good proxy for layoffs--were at 900,000, which is about 4x precrisis levels. Although the number of first-time claims ticked down from a week earlier, the four-week average of 848,000 remains near the highest reading since September of last year and likely reflects both a surge in applications after passage of the Christmas stimulus package and the usual seasonal climb in claims into January. The claims numbers cover the Bureau of Labor Statistics' survey week for employment report. The initial filing edged up since December's survey filing week, so there is a real possibility the January employment report will show a decline in payroll jobs for a second consecutive month.
Such elevated first-time unemployment insurance claims with no signs of improvement in the trend since September make it clear that the jobs market is far from healed. Although the total number of continuing claims recipients across all programs fell to 16 million in the week ended Jan. 2 (the most recent week available), it's likely that the pace of improvement will stall, with initial claims having moved up in recent weeks. The situation will likely worsen before turning better in the coming weeks, and it may make the road to labor market recovery that much tougher without government support.
And while the new administration rolls out more policies in the coming weeks, one important sector that has avoided the pandemic's wrath and continued to outperform consensus expectations is housing.
The V-shaped recovery in the second half of 2020 was punctuated by housing starts jumping 5.8% month over month to 1.67 million annualized in December. This marks the highest level of groundbreakings since September 2006. Despite the pandemic shock, total housing starts ended the year at 1.4 million, or 7.7% above the 2019 level. Single-family starts, at 1.34 million, were up 28% year over year, while multifamily starts were down 39% in December. Single-family starts are at the highest level since 2006.
Housing starts ended the year averaging 1.59 million annualized (October-December), just about the same average in the three months prior to the pandemic. 2020 was off to a strong start before the pandemic, and the current pace is likely to continue in the near term. Housing permits--a leading indicator of groundbreakings to come--were 1.7 million (annualized) in December, following 1.64 million units in November. Single-family permits have been driving the increase, indicating a further rise in single-family construction, which is finally back to above its historical average level.
Low mortgage rates and limited existing home inventory have given a boost to single-family housing starts. Sales of both existing and new homes have been robust, which meant available supply has fallen to or near record lows. Existing home sales for December were stronger than expected, increasing 0.7% to an annualized 6.76 million units and pushing sales for 2020 to a 14-year high. Given demand is outpacing supply, inventory has hardly been able to keep up. In December, supply of existing homes was running at 1.9 months. This picture is unlikely to change in the near term given the leading indicator for housing demand--the mortgage applications for purchase volume index--jumped to a 12-year high last week (up 15% year over year).
Unsurprisingly, homebuilders' sentiment has also remained near its historical high. This homebuilder optimism bodes well for continued strong growth in residential construction and new home sales.
Industrial Production Continues To Recover
The scars of COVID-19 appear to be fading in the manufacturing sector as we enter the new year. Industrial production (composed of manufacturing, mining, and utility production) ended 2020 on a strong note--increasing for a third consecutive month in December.
Increased demand for goods is helping the manufacturing sector to recover with few hiccups--in contrast with the people-sensitive service sector, which is struggling as the virus surges. Industrial production in the manufacturing sector was 2.8% below its December 2019 level, much improved compared with down 19.6% in April. Output in mining, while still down 12.3% from a year ago, also rose in December (for a second consecutive month) in tandem with firming oil prices.
Regional manufacturing surveys from the Philadelphia and New York regions for January suggest that recovery in manufacturing is likely to persist through January and beyond. The current inventory cycle--which indicates restocking needs--the upbeat housing market, and more pandemic relief on the way suggest that machines will continue to hum in the coming months. Oil prices are now above $50/barrel (WTI), which should increasingly incentivize investment in the energy sector.
|Review Of Economic Indicators Released In The Past Two Weeks (Jan. 9-Jan. 22, 2021)|
|Latest period||Jan-21||Dec-20||Nov-20||Level year ago||% year-over-year|
|Jobless claims (4-week moving average in '000s)||1/16/2021||848||836||741||213|
|Job openings: total nonfarm (SA, mil.)||November||6.53||6.79|
|Consumer Sentiment Index (University of Michigan)||January-(Preliminary)||79.2||80.7||76.9||99.8|
|Industrial Production (m/m,% change)||December||1.6||0.5||(3.6)|
|Industrial Production: Manufacturing (m/m, % change)||December||1.0||0.8||(2.6)|
|Retail sales (m/m, % change)||December||(0.7)||(1.4)||2.9|
|Retail sales: excluding food services (m/m, % change)||December||(0.3)||(1.1)||6.3|
|Business inventories (m/m,% change)||November||0.6||(3.3)|
|Capacity Utilization: Total Index||December||74.5||73.4||77.2|
|Philadelphia Fed General Business Conditions Index||January||26.5||9.1||20.7||13.7|
|Empire State General Business Conditions Index||January||3.5||4.9||6.3||4.8|
|Housing and construction|
|Housing starts (SAAR, mil. units)||December||1.67||1.58||1.59|
|Housing permits (SAAR, mil. units)||December||1.71||1.64||1.46|
|Housing completion (SAAR, mil. units)||December||1.42||1.22||1.31|
|Import prices (m/m,% change)||December||0.9||0.2||(0.3)|
|Export prices (m/m,% change)||December||1.1||0.7||0.2|
|Producer Price Index Final Demand (m/m,% change)||December||0.3||0.1||0.8|
|CPI (m/m, % change)||December||0.4||0.2||1.3|
|Core CPI (m/m, % change)||December||0.1||0.2||1.6|
|m/m--Month over month. SA--Seasonally adjusted. SAAR--Seasonally adjusted annual rate. Notes: 1. Jobless claims are weekly data. 2. Core CPI excludes food and energy. Sources: U.S. Bureau of Labor Statistics, U.S. Bureau of Economic Analysis, and U.S. Census Bureau.|
|Economic Release Calendar|
|27-Jan||Durable goods orders||Dec||2.0||1.0||1.0|
|28-Jan||GDP Advance Report||Q4||1.0||4.3||33.4|
|Chain Price Index Advance Report||Q4||2.5||2.5||3.5|
|Advance trade in goods||Dec||(87.0)||(83.5)||(85.5)|
|Initial claims (000s)||Wk of 1/23/21||920||875||900|
|New home sales (mil.)||Dec||0.850||0.866||0.841|
|29-Jan||Employment Cost Index||Q4||0.5||0.5||0.5|
|Personal Consumption Expenditures||Dec||(1.5)||(0.5)||(0.4)|
|University of Michigan Consumer Sentiment (final)||Jan||82.0||79.2||79.2|
|3-Feb||ADP Employment Survey (000s)||Jan||(100)||100||(123)|
|4-Feb||Nonfarm productivity (prelim)||Q4||5.2||(0.2)||4.6|
|Unit labor costs (prelim)||Q4||(8.6)||2.7||(6.6)|
|5-Feb||Nonfarm payrolls (000s)||Jan||(50)||100||(140)|
|Private nonfarm payrolls (000s)||Jan||(70)||105||(95)|
|Manufacturing payrolls (000s)||Jan||8||31||38|
|Unemployment rate (%)||Jan||6.8||6.7||6.7|
|Average hourly earnings||Jan||0.3||0.2||0.8|
|Trade balance (bil. $)||Dec||(71.0)||(67.2)||(68.1)|
|Goods and services exports (bil. $)||Dec||186.0||187.9||184.2|
|Goods and services imports (bil. $)||Dec||257.0||254.3||252.3|
|Consumer credit (bil. $)||Dec||10.0||13.0||15.3|
The views expressed here are the independent opinions of S&P Global's economics group, which is separate from, but provides forecasts and other input to, S&P Global Ratings' analysts. The economic views herein may be incorporated into S&P Global Ratings' credit ratings; however, credit ratings are determined and assigned by ratings committees, exercising analytical judgment in accordance with S&P Global Ratings' publicly available methodologies.
|U.S. Chief Economist:||Beth Ann Bovino, New York (1) 212-438-1652;|
|U.S. Senior Economist:||Satyam Panday, New York + 1 (212) 438 6009;|
|Contributor:||Shuyang Wu, Beijing|
|Research Contributor:||Arun Sudi, CRISIL Global Analytical Center, an S&P affiliate, Mumbai|
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