Contagious

Contagious.  Investors could not shake the fear of the new, highly contagious strain of COVID. Surprising economic numbers led to the selling and Congress may be poised for a showdown with the President.

N O T E W O R T H Y

Those pesky numbers.  There is a reason that I dedicate a good portion of my note to highlight economic numbers.  They are, after all, a true and mostly accurate reading on what the economy is up to.  Of course, like most other things in life, you have to know what you are consuming. Many of those numbers give us a snapshot of economic activity at some point in time, usually the past.  That is why I also include the month when I report releases. I have written about this before, but it bears repeating.  One of the most quoted economic numbers is Gross Domestic Product, or GDP.  It is the sum of all economic activity in the US, so no wonder everyone is so keen to see if it is growing or shrinking.  Yesterday, GDP growth was released.  That number however reported on Q3… the one that ended in September. Moreover, it was the third estimate of the same number.  That’s right, the Bureau of Economic Analysis continuously updates and revises the number.  There is a preliminary, second, third, and ultimately a final number.  That third revision reflected that the US GDP grew at a +33.4% annualized rate in the third quarter.  That doesn’t mean that the economy grew at +33% in that three month period.  The actual number was something more like +16.7% but the statisticians use a formula to assume what annual compounded growth would be like if that growth continued for 4 consecutive quarters.  Hmm, can we actually continue to grow the economy at that pace for the next three quarters?  I dare not take a shot at answering that… especially during these times.  So let’s not pop any bottles for the economy just yet.  in fact, let’s take a look at some more current numbers, but before that let’s recall what has happened since the end of the last quarter, since September 30th.  OK, lots of good things like vaccines and an interesting but mostly completed election.  Unfortunately, the primary driver for this economic predicament, the pandemic, has surged causing a new wave of restrictions, that continue to grow. Those restrictions have caused an increase in job layoffs.  We don’t have to wait three months to see that happening as we get unemployment numbers on a weekly basis and those numbers have been rising.  Another more current number is Consumer Confidence.  That number is based on a survey of a random sample of US households and is recognized as a credible current snapshot of sentiment.  Why is that important?  Because confident consumers consume, and those consumers represent more than 2/3 of GDP.  That survey is broken down into sentiment about current conditions and feelings about where things will be in 6 months and beyond.  That number was released by the Conference Board yesterday, and it showed that confidence had fallen to 88.6, quite a bit lower than economists had predicted.  Moreover, last month’s numbers were actually revised down as well, meaning consumers were less confident last month (November) than previously reported.  The source of the revision was in the future expectations which was revised down to 84.3 from 89.5. Sentiment about the current situation fell to 90.3 from last month’s 105.9. The bottom line here is that consumers were less confident in this current month than last, which is not a good sign for economic growth, especially in a quarter which is typically strong for retail and services.  Today, we will get a torrent of releases due to the Holiday.  The important ones, the current ones, are the weekly employment numbers and the University of Michigan Sentiment.  The sentiment is expected to have increased slightly from last month.  An even more current number which actually affects sentiment is the weekly initial Jobless Claims from last week.  That is expected to show that 880,000 new unemployment claims were filed last week, down by -5k from the prior week.  You see, those numbers are quite high and have remained high when we would like to see them trend lower.  That trend has, unfortunately, been heading higher since early November.  Popping champaign bottles to celebrate with close family this holiday is surely warranted after a trying year. Popping bottles for the economy... may be premature.

THE MARKETS

Stocks traded mixed but mostly lower yesterday despite positive news that Congress passed a stimulus bill.  The S&P500 fell by -0.21%, the Dow Jones Industrial Average dropped by -0.67%, the Russell 2000 Index climbed by +0.99%, and the Nasdaq Composite Index rose by +0.51%. Bonds advanced and 10-year treasury yields gave up -2 basis points to 0.91%.

NXT UP

- Durable Goods Orders (Nov) are expected to have risen by +0.6%  after climbing by +1.3% in October.

- Initial Jobless Claims (Dec 19) are expected to come in at 880k compared to last week’s surprising 885k.

- Continuing Jobless Claims (Dec 12) are expected to be 5.56 million, up from the prior week’s 5.508 million.

- Personal Income (Nov) may have fallen by -0.3% and Personal Spending is expected to have risen by +0.5%.

- University of Michigan Sentiment (Dec) is expected to come in at 81.1 lower than its last estimate of 81.4.

- New Home Sales (Nov) may have slipped by -0.5% after falling by -0.3% in October.

daily chartbook 2020-12-23