January 08, 2021 | 15:46
U.S. Economy: Mixed Messages
As the new year rolls over, the U.S. economy is showing some resiliency to the second wave of caseloads and renewed restrictions but has also lost its momentum from the initial reopenings. The new fiscal deal and any new legislation that comes out of a bluer Congress should keep the recovery going in the first quarter, albeit at a modest 1% rate. But much will depend on how quickly spiralling caseloads and fatalities (daily record above 4,000) can be brought under control and restrictions can be relaxed.
The labour market has clearly hit a giant speed-bump, though largely due to restrictions in the leisure and hospitality sector, which contributed to all (and then some) of the 140,000 decline in December nonfarm payrolls. Most other sectors, including manufacturing, construction, professional and business services, and retail showed an acceleration in job growth at year-end. Until the restrictions are relaxed, the labour market will likely tread water. Initial jobless claims remain high, with the four-week moving average stuck above 800,000, four-times higher than pre-virus levels and still worse than the darkest days of the Great Recession. Challenger job cuts popped higher last month, reversing an earlier downward trend. Only 56% of the 22 million payrolls that were lost during the shutdowns have been recovered, so there is still a lot of wood to chop.
Other data tell an equally mixed story, though this is relatively good news as it suggests the underlying economy (in the absence of restrictions) remains generally healthy and is positioned to speed up once we get through the current second wave. Key December figures released this week were surprisingly strong, with new auto sales rising 4% and both ISM surveys suggesting that activity—even services—perked up at year-end (though partly because of longer delivery times stemming from COVID-related disruptions to supply chains). The U.S. trade deficit hit a 14-year high in November, as imports continued to outrun exports, suggesting the economy is seeing little payoff from earlier trade wars. Timelier data also point in different directions. The New York Fed’s Weekly Tracker of yearly GDP growth reversed sharply last week (to -1.8%) after making steady progress from April’s nadir (of -11.5%). It was tracking +1.7% last February, or near potential growth, so the current print indicates growth is still more than 3 ppts weaker than normal. Air travel picked up during the holidays but it’s still half of normal levels. Mobility data on driving, transit usage, retail and recreational activity remain flat, as are hotel occupancy rates at roughly 35% below year-ago levels. Indoor dining plunged in early December when new restrictions were slapped on some states (notably California). While it has subsequently reversed course, it’s still just half of year-ago levels nationwide, with the Big Apple down about 80%.
The upshot is that the U.S. recovery looks to continue at a modest rate in the near-term with help from fiscal stimulus, before accelerating in the spring on easing restrictions, pent-up demand, and a wellspring of savings.