EconoFACTS

December 23, 2020 | 09:21

U.S. Durable Goods Orders; PCE (Nov. 2020) — Unmerry End to Holiday Season

Economist

Director and Senior Economist
Economics

Sal Guatieri is a Senior Economist and Director at BMO Capital Markets, with over two decades experience as a ma... (Read more)

Sal Guatieri

Director and Senior Economist
Economics

Sal Guatieri is a Senior Economist and Director at BMO Capital Markets, with over two decades experience as a ma... (Read more)

Bottom Line: American households cut their holiday shopping early this year as new restrictions took effect, though businesses are likely still spending. The next two months could also be grim, with all hopes resting on the vaccine rollout and a new fiscal deal.

Personal spending fell 0.4% in November, a little weaker than expected, and the prior month's gain was chopped down to 0.3% (from 0.5% previously). This flags some downside risk to our Q4 PCE and GDP growth calls, both at 4.9% a.r., assuming a small decline in December as restrictions intensify (notably in California). Assuming the fiscal deal gets signed and the second wave begins to crest, we still see a modest advance in consumer spending and GDP in Q1. Shoppers cut back on clothing, autos, food services and accommodation in November, while buying more groceries. The December drop in consumer confidence flags an equally dismal end to the holiday shopping season, and not just because of Covid. Personal income fell 1.1% in November after sliding 0.6% the prior month. A 0.4% advance in wages (the slowest in seven months) could not offset a drop in government transfers due to a cut in PPP loans to small businesses and in UI payments to the unemployed. The savings rate fell to 12.9% from 13.6%, though hefty excess savings built up during the pandemic (and surely to increase further on recovery rebates in the new fiscal deal) will provide solid support to the average household in the new year.

Business spending has also cooled, but appears to still be rising. Durable goods orders jumped 0.9% in November after a 1.8% sprint in October. Core capital goods orders rose 0.4%, shy of expectations, but the prior month's gain was doubled to a hefty 1.6% and marked the seventh straight monthly advance. While "core" shipments fell 2.2% due to a drop in aircraft, the decline did not retrace the jumbo 3.9% spike in October, suggesting business equipment spending continued to climb in the quarter.

And businesses might have eased back on recent layoffs. Initial jobless claims surprisingly fell by 89,000 to 803,000 in the December 19 week (led by a partial reversal in California), while continuing claims slid by 170,000 to 5.34 million in the week before that, lowering the insured unemployment rate a couple notches to 3.6%. Still, the four-week average of initial claims remains lofty at over 818,000, and total claims in all programs remains high at 20.4 million in the December 5 week, though it did decline by 283,000. We still look for payrolls growth to virtually stall in December, with a possible slight backup in the unemployment rate.

Table 1 - United States — Personal Income and Consumption

(month/month % change)

Source: BMO Economics, Haver Analytics

Table 2 - United States — Durable Goods Orders

(month/month % change : s.a.)

Source: BMO Economics, Haver Analytics