Weekly Macro Update: A Slow Recovery But Housing Remains Strong
Our last macro newsletter focused on the ISM Services Index. This week’s newsletter provides a general update on the U.S. macroeconomic picture. Here are the highlights:
Trivial decline in consumer sentiment propped up by vaccine rollout and Biden economic policies
U.S mobility continues to decline as COVID-19 puts pressure on states to lock down and people to work-from-home
Strong building permits data suggests that housing will continue to outperform
Initial unemployment claims steadily rising and unlikely to meaningfully recover anytime soon
Consumer Sentiment:
Source: University of Michigan, chart created by The Macro Mail
Consumer sentiment is an important leading macroeconomic indicator. Consumer sentiment drives the consumption of consumer discretionary goods, which typically carry a higher profit margin, driving net earnings. As such, the University of Michigan Consumer Sentiment Index is a useful leading indicator of corporate performance.
Source: University of Michigan, table created by The Macro Mail
Preliminary results for January show a trivial decline in sentiment, with the current conditions index down by -2.3 points and the consumer expectations index down by -0.8 points. The rise in COVID-19 cases and the effect of Trump’s impeachment were largely offset by confidence in the vaccine rollout and Biden’s economic policies. Despite rising COVID-19 cases and a slow vaccine rollout, the Democrats moving quickly on a stimulus relief bill will likely improve consumer sentiment going forward.
U.S. Mobility:
Google’s mobility reports provide a keen insight into how consumers are acting under COVID-19 lockdown measures. The data shows mobility trends in the following areas:
Retail and Recreation
Grocery and Pharmacy
Parks
Transit Stations
Workplaces
Residential
The data is presented as an index, with a baseline derived from average mobility for that day of the week from the 5‑week period between January 3rd and February 6th, 2020.
Source: Google Community Mobility Reports, chart created by The Macro Mail
Since October, mobility across the board has been on a steady decline as COVID-19 cases and subsequent lockdowns have kept people at home. Mobility is unlikely to meaningfully recover in the short-term and sectors particularly sensitive to mobility such as travel and leisure are likely to remain depressed. There is, however, an end in sight. After reporting its 14th consecutive drop in coronavirus hospitalizations, California’s governor Gavin Newsom has lifted the state’s stay-at-home order. In the short-term with COVID-19 cases surging it is unlikely that mobility will show any meaningful recovery, but as the vaccine is rolled out and other states emerge from lockdown this may begin to change.
Housing:
The U.S. Census Bureau and the U.S. Department of Housing and Urban Development jointly release seasonally adjusted housing statistics every month. These statistics are important because the housing market is a good indicator of overall economic health.
Authorized building permits for December were up 4.5% from the revised October rate and 17.3% above the December 2019 rate. Housing starts grew by 5.8% since November and 5.2% since December 2019. Housing completions, too, grew by 15.9% since November and were 8.0% above the December 2019 rate.
Authorized permits tend to lead housing starts and completions. With permits and housing starts continuing to grow, and ISM data showing strong performance in the Wood Products and Furniture & Related Products sectors, it is likely that the housing sector will continue to outperform going forward.
Source: United States Census Bureau, chart created by The Macro Mail
Employment:
Weekly initial unemployment claims is a leading economic indicator put together by the Department of Labor tracking the number of initial claims for unemployment insurance filed by individuals after separation from an employer. Despite early improvements on this front, initial claims have been steadily increasing since November. With COVID-19 cases still rising and vaccine penetration still low it is unlikely that there will be any meaningful improvements on this front in the short-term.
Source: Federal Reserve Economic Data, chart created by The Macro Mail
Things We’re Reading:
“China’s Economy Overtaking the U.S. Will Be Harder Than It Looks” - Wall Street Journal
“Biden set for ‘buy American’ push to boost domestic manufacturing” - Financial Times
“World’s Economic Recovery Delayed by Slow Vaccine Rollouts” - Bloomberg
“IMF forecasts 21% rebound in crude oil prices for 2021 to just above $50/b” - S&P Global
“Anticipating market trends during the post-COVID recovery” - Oraclum Intelligence Systems