Retail sales sputtered in the face of the second wave. Here are the five things we learned from U.S. economic data released during the week ending December 18.
Retail sales slowed in November. Retail and food services sales dropped 1.1 percent during the month to a seasonally adjusted $546.5 billion. Even with its first drop since April, retail sales were 4.1 percent ahead of their year-ago pace (sales of the first 11 months of 2020 was up 0.3 percent from the same timespan last year). One of the factors pulling down the Census Bureau measure was declines at auto dealers/parts stores (-1.7 percent) and gas stations (-2.4 percent). Net of both, core retail sales fell a slightly smaller 0.8 percent during the month (although with a strong 12-month comparable of +5.9 percent). The sales slowdown was widespread, undoubtedly spurred by rising COVID-19-related restrictions. Reporting declines were stores focused on apparel (-6.8 percent), electronics/appliances (-3.5 percent), furniture (-1.1 percent), and sporting goods/hobby (0.6 percent). Sales plummeted 4.0 percent at restaurants and bars, with a particularly horrid -17.2 percent year-ago comparable.
Manufacturing output expanded more modestly in November. The Federal Reserve estimates manufacturing output grew a seasonally adjusted 0.8 percent during the month. This was down from a 1.1 percent bounce in October and left production 3.7 percent under year-ago levels. Durable goods output jumped 1.5 percent during the month (boosted by automobile production) while that for nondurables grew by only 0.1 percent. Overall industrial production gained 0.4 percent in November, less than half of October’s 0.9 percent bump and leaving the measure 5.5 percent behind its year-ago pace. Mining output advanced 2.3 percent while the same at utilities plummeted 4.3 percent (thanks to moderate weather during the fall).
Forward-looking economic measures indicate that the recovery is slowing down. The November Leading Economic Index (LEI) from the Conference Board added 6/10ths of a point to a reading of 109.1 (2016=100). Even though the LEI has grown for six consecutive months, November’s reading was the smallest gain over this period, with the measure remaining 2.2 percent behind its year-ago reading. Seven of ten LEI components made positive contributions during the month, led by jobless claims, but softening consumer sentiment weighed down the index. The coincident index inched up by 2/10ths of a point to a reading of 103.2 (-3.7 percent versus November 2019), with all four index components making positive contributions. The lagging index declined by 4/10ths of a point to 106.9 (-1.7 percent versus November 2019) as only one of seven index components (Consumer Price Index for services) making a positive contribution. The press release notes that the U.S. economy faces “downside risks” resulting from the second wave of COVID-19 and high unemployment.” Nonetheless, the group still anticipates that the U.S. economy has expanded at a modest 2.2 percent annualized rate during the current quarter.
The Federal Reserve does not make a move and anticipates that it will not do so for at least three years. The policy statement released following the past week’s Federal Open Market Committee (FOMC) nearly match that from October’s meeting. The Fed remained “committed to using its full range of tools to support the U.S. economy” to promote “maximum employment and price stability.” This included committee members voting unanimously to keep the fed funds target rate at near-zero percent. The Fed will also purchase $80 billion in Treasury securities $40 billion in agency mortgage-backed securities each month to support “the flow of credit to households and businesses.”
At the same time, the FOMC released the latest set of economic projections from Federal Reserve Board members and Federal Reserve Bank presidents. The median forecast has the U.S. economy expanding 4.2 percent next year and 3.2 percent in 2022. The group anticipates the unemployment rate will fall to 5.0 percent by the end of next year and 4.2 percent in 2022. Further, the group does not expect inflation to rise to its two-percent target until 2023. As a result, 12 of the 16 submitted forecasts keep the fed funds rate right where it is now: near-zero percent—until at least the end of 2023.
Housing starts rose again in November. The Census Bureau reports that housing starts increased 1.2 percent during the month to a seasonally adjusted annualized rate (SAAR) of 1.547 million units. The sixth gain in seven months left starts 12.8 percent ahead of the year-ago level. Single-family home starts edged up 0.4 percent while those for multi-family homes rose 8.0 percent. The former was up 27.1 percent from a year earlier, while the latter had a 12-month comparable of -16.0 percent. The torrid pace of housing construction looks to continue as the annualized count of issued building permits jumped another 6.2 percent in November to 1.639 million (+8.4 percent), with single-family home permits up a robust 22.2 percent from November 2019 levels. The annualized completions fell 12.1 percent during the month to 1.323 million units (-4.8 percent versus November 2019).
Other U.S. economic data released over the past week:
- Jobless Claims (Week ending December 12, First-Time Claims, seasonally adjusted): 885,000 (+23,000 vs. the previous week, +656,000 vs. the same week a year earlier). 4-week moving average: 812,500 (+268.1% vs. the same week a year earlier).
- Housing Market Index (December 2020, Index (>50=More homebuilders view housing market as “good” versus “bad,” seasonally adjusted): 86 (November 2020: 90; December 2019: 76).
- Import Prices (November 2020, All Imports): +0.1% vs. October 2020, -1.0% vs. November 2019. Nonfuel Imports: -0.3% vs. October 2020, +1.6% vs. November 2019.
- Export Prices (November 2020, All Exports): +0.6% vs. October 2020, -1.1% vs. November 2019. Nonagricultural Exports: +0.3% vs. October 2020, -1.7% vs. November 2019.
- Business Inventories (October 2020, Manufacturers’ and Trade Inventories, seasonally adjusted): $1.949 trillion (+0.7% vs. September 2020, -4.0% vs. October 2019).
- Treasury International Capital Flows (October 2020, Net Foreign Purchases of U.S. Securities, not seasonally adjusted): +$31.4 billion (vs. September 2020: +$78.2 billion, vs. October 2019: +$4.3 billion).
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What We Learned About the U.S. Economy Last Week 