Between the U.S. Bureau of Economic Analysis showing personal income declined month-to-month in October and November along with the U.S. Census Bureau estimating that retail spending fell in the same months, it appears that the economy is losing steam. Mastercard’s
SpendingPulse survey is also estimating that holiday sales only increased 2% vs. the industry’s forecast of a 3.6% to 5.2% rise.
Even with the recently signed Covid-19 relief bill it may not be enough to keep the economy on track before enough of the vaccine is distributed and people are inoculated. It should also be kept in mind that a large percentage of people who received stimulus money earlier this year either saved it all (almost 40%) or spent it all on essentials (almost 30%). Those whose jobs were not impacted tended to save or invest it while those who lost their jobs or saw their income reduced desperately needed it to make ends meet.
While wages have risen, government payments have fallen
The U.S. Bureau of Economic Analysis estimates that after personal income fell 0.6% in October from September it dropped 1.1% from October to November. While income (which includes government payments) has risen 2.0% since February before the coronavirus led to the economy being shut down, wages are down 0.4% since then.
Gregory Daco at Oxford Economics created this graph which shows a jump in Real Personal Income (the solid blue line) but that was due to a huge inflow of government stimulus payments. If those had not occurred the economy would have been in much worse shape since Real Personal Income Except for Transfers (the dotted blue line) is what consumers would have had to spend. The difference between the Real Personal Income and Real Consumer Spending shows a huge increase in Personal Savings.
To get a longer-term view this is a chart Daco created going back to 1960. You can see the abnormally large swings in income and spending in 2020 compared to previous downturns in the economy. The blue line representing spending has down-ticked the previous two months. It will be critical for it to rebound for the economy to get moving again.
Consumer spending is showing signs of weakness
November saw the first decline in overall consumer spending month-to-month after six months of growth. While Services has dropped from 69% to 66% of the economy, it having even a 0.2% decline month-to-month is impactful. And spending on Goods has also fallen for the past two months.
This chart by Daco helps to illustrate that Food Services and Transportation were the weakest sectors of the Services economy. Clothing and Footwear and Motor Vehicles and Parts were the weakest parts of the Goods economy.
Retail sales fell the last two months
The U.S. Census Bureau tracks retail sales. It estimates sales were essentially flat from September to October or down 0.1% but from October to November they fell 1.1%. They are up 4.1% from November 2019, but if the economy stays on the weak side this comparison number should drop.
Daco’s graph below shows that there were only three sub-sectors that showed an increase month-to-month and that core retail sales also fell in November.
Mastercard’s SpendingPulse analysis has holiday sales (November 1 to December 24) without autos and gas increasing 2.0% year over year and excluding only autos the increase was only 0.6%. These results would fall short of the National Retail Federation’s late November forecast.
The economic recovery may have stalled
This chart is from Oren Klachkin at Oxford Economics, and it tracks the economy in five geographic areas. While it shows the economy improved in the spring, it flattened over the summer and has downturned recently.
Consumer confidence has slipped
The most recent reading on consumer confidence showed declines, not a great signal going into the holiday spending season combined with increased coronavirus cases, hospitalizations and deaths. The Conference Board said, “the Consumer Confidence Index® declined in December, after decreasing in November. The Index now stands at 88.6 (1985=100), down from 92.9 in November. The Present Situation Index – based on consumers’ assessment of current business and labor market conditions – decreased sharply from 105.9 to 90.3. However, the Expectations Index – based on consumers’ short-term outlook for income, business, and labor market conditions – increased from 84.3 in November to 87.5 this month.”
Biden's rescue plan will give U.S. economy significant boost: Reuters poll – The Telegram
By Indradip Ghosh and Richa Rebello
BENGALURU (Reuters) – U.S. President Joe Biden’s proposed fiscal package will boost the coronavirus-hit economy significantly, according to a majority of economists in a Reuters poll, and they expect it to return to its pre-COVID-19 size within a year.
Biden has outlined a $1.9 trillion stimulus package proposal to jump-start the world’s largest economy, which has been at the epicenter of the COVID-19 pandemic having lost over 400,000 lives, fueling optimism and sending Wall Street stocks to record highs on Thursday.
Hopes for an upswing in U.S. economic growth, helped by the huge stimulus plan, was reflected in the Jan. 19-22 Reuters poll of more 100 economists.
In response to an additional question, over 90%, or 42 of 46 economists, said the planned fiscal stimulus would boost the economy significantly.
“There are crosswinds to begin 2021 as fiscal stimulus helps to offset the virus and targeted lockdowns. The vaccine rollout will neutralize the latter over the course of the year,” said Michelle Meyer, U.S. economist at Bank of America Securities.
“And upside risks to our…growth forecast are building if the Democrat-controlled government can pass additional stimulus. The high level of virus cases is extremely disheartening but the more that the virus weighs on growth, the more likely that stimulus will be passed.”
For a Reuters poll graphic on the U.S. economic outlook:
The U.S. economy, which recovered at an annualized pace of 33.4% in the third quarter last year from a record slump of 31.4% in the second, grew 4.4% in the final three months of the year, the poll suggested.
Growth was expected to slow to 2.3% in the current quarter – marking the weakest prediction for the period since a poll in February 2020 – amid renewed restrictions.
But it was then expected to accelerate to 4.3%, 5.1%, 4.0% in the subsequent three quarters, a solid upgrade from 3.8%, 3.9% and 3.4% predicted for those periods last month.
On an annual basis, the economy – after likely contracting 3.5% last year – was expected to grow 4.0% this year and 3.3% in 2022, an upgrade from last month.
For a graphic on Reuters Poll – U.S. economy and Fed monetary policy – January 2021:
Nearly 90%, or 49 of 56 economists, who expressed a view said that the U.S. economy would reach its pre-COVID-19 levels within a year, including 16 who expected it to do so within six months.
“Even without the stimulus package, we had already thought the economy would get back to pre-COVID levels by the middle of this year,” said Jacob Oubina, senior U.S. economist at RBC Capital Markets.
“With the new stimulus package there will be more direct money in people’s pockets, easily boosting the economy, provided a vaccine rollout progresses in a constructive manner.”
But unemployment was not predicted to fall below its pre-pandemic levels of around 3.5% until 2024 at least.
When asked what was more likely for inflation this year, only one said it would ease. The other 40 economists were almost evenly split between “a significant pickup” and price pressures remaining “about the same as last year.”
Still, the core Personal Consumption Expenditures (PCE) price index – the Federal Reserve’s preferred inflation gauge – was forecast to average below the target of 2% on an annual basis until 2024 at least, prompting the central bank to keep interest rates unchanged near zero over the forecast horizon.
“I don’t think it will be an increase in underlying (inflation) trend, it is sort of a rebound in prices that have been depressed during the pandemic,” said Scott Brown, chief economist at Raymond James.
(For other stories from the Reuters global long-term economic outlook polls package:)
(Reporting by Indradip Ghosh and Richa Rebello; Additional reporting by Manjul Paul; Polling by Mumal Rathore; Editing by Rahul Karunakar and Hugh Lawson)
How Biden's Pandemic Plan Could Affect The Economy – NPR
Renewed lockdown sends UK economy tumbling again: PMI – Cape Breton Post
By Andy Bruce
LONDON (Reuters) – Britain’s relapse into a third national COVID-19 lockdown has sparked the sharpest drop in business activity since May, with services companies hit hardest, a survey showed on Friday.
A preliminary “flash” IHS Markit/CIPS UK Composite Purchasing Managers’ Index (PMI) fell to 40.6 in January, down from 50.4 in December.
The drop below the 50 threshold for growth was bigger than any economist forecast in a Reuters poll, which had pointed to a reading of 45.5.
In addition to the latest lockdown, data company IHS Markit said Britain’s post-Brexit shift to a more bureaucratic trading arrangement with the European Union had contributed to the decline.
“Services have once again been especially hard hit, but manufacturing has seen growth almost stall, blamed on a cocktail of COVID-19 and Brexit, which has led to increasingly widespread supply delays, rising costs and falling exports,” Chris Williamson, chief business economist at IHS Markit, said.
The pace of job losses accelerated, after easing in December.
Economists polled by Reuters last week forecast a 1.4% fall in output for the first quarter. [ECILT/GB]
The official death toll from COVID-19 in the United Kingdom is nearing 100,000 and is currently the highest in Europe and the fifth worst in the world after the United States, Brazil, India and Mexico.
Britain is rolling out vaccines faster than many of its peers, which should bode for a swift economic rebound later this year.
Thursday’s survey showed companies were upbeat about their business prospects for the year ahead, with optimism hitting a 6-1/2-year high.
The PMI for the services industry, which accounts for the vast bulk of Britain’s private sector economy, fell to 38.8 in January from 49.4 in December, its lowest level since May and marking a third month of contraction.
Factories fared much better, despite fading growth in output and a renewed decline in order books. The manufacturing PMI fell to 52.9 in January from 57.5 in December, remaining above the 50 dividing line for growth.
(Editing by Toby Chopra)
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