The equity markets were generally softer this week as COVID infections pushed higher and talks on another fiscal package stalled out. There wasn’t much on the economic news front, but two reports stand out.
A solid report. Sales growth picked up again in September, increasing a stronger-than-expected 1.9%. As you can see below, retail sales have easily eclipsed the high set pre-COVID.
Revisions to prior months were mixed, July up and August down, but on net second-half consumption growth now looks firmer. The September strength was broad-based; of the 13 major retailing categories only sales of electronics saw a decline. On the back of this report J.P. Morgan revised higher their estimate for 3rd quarter GDP growth from 33.0% to 34.5%.
It is interesting that spending hasn’t been impacted by the expiration of expanded unemployment benefits, at least not yet. As you can see below, data from Chase shows credit card transactions have basically normalized in recent weeks (although more spending is taking place on-line, as you would expect).
This can be explained in part by the fact that people are returning to work, albeit slowly. Another element is that a decent slug of the payments to individuals was saved. You can see below how high savings rates got earlier in the year. Now that benefits have been trimmed, savings are starting to fall, but they still have a ways to go to get back to pre-COVID levels.
Weekly Jobless Claims
The bad news is that weekly jobless claims ticked higher in the latest week. Thursday’s report shows seasonally adjusted claims of 898K, up 53K from the previous week. This was worse than the forecast of 825K. The chart below shows the claims data for each year going back to 2009.
We have to take these numbers with a grain of salt, though. California hasn’t been updating their data since mid-September due to accounting problems. They are simply reporting the same numbers week in and week out. As Tim Duy notes:
“Bottom Line: I don’t know what happens going forward. Maybe when California fixes its data we learn that claims kept dropping in October. Or maybe the employment data is revised downward on a massive scale. Or maybe job growth just flattens. What I am fairly confident of is that the claims data resulted in a degree of pessimism about the economy that was clearly unwarranted. Is the pace of layoffs still elevated relative to last year? Almost certainly yes. But I am not confident layoffs are as high as the initial claims numbers suggest.”
Will the claims data improve once California gets their act together? That’s the betting, but we will have to wait to see.
Charts We Found Interesting
1. It is becoming clear that the U.S. is moving into a third wave of infections. Thankfully, hospitalization and mortality numbers are not hooking significantly higher.
2. Infections come in clusters. The pandemic in the U.S. was initially worst in the north-east. Now the mid-west is being hit disproportionally.
3. Europe never really had a second wave, but their third wave is more than making up for lost time.
4. Another week, another new low in mortgage rates.
5. The Committee for a Responsible Federal Budget (apparently there is such a committee, who knew?) tried to model the budget deficit under a Trump or a Biden administration. The bottom line – both are going to spend like crazy given a chance.
6. Modern Monetary Theory argues in part that the Federal Reserve should simply buy newly issued bonds from the Treasury as long as inflation remains low. While the Fed hasn’t gone this far yet, the recent increase in the deficit has basically been covered by the Fed’s bond purchases. Implicit MMT?
7. The new post-COVID pastime is playing with Zillow. What did my neighbor pay for their house? Now that I’m working remotely, what can I buy in Missoula that has fast internet access and is near skiing? Missoula is surprisingly expensive by the way!!
Or for those with a love of the French countryside, consider the following:
Exhibit #1: What looks like a starter home in Menlo Park, CA.
Postage stamp lot
Exhibit #2: A starter castle in rural France
$3,281,040 at today’s exchange rate
Cannons not included
Have a good weekend.
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