This Week's State Of The Economy - What Is Ahead? - 12 February 2021

Date: 19 February, 2021 | By : 

U.S. - Inflation Comes Back in Focus

  • Market attention was concentrated on the January consumer price data, as inflation has come back into focus. There is renewed concern among market participants that inflation is about to take off once the economy re-opens and demand accelerates. But, such concerns have not yet meaningfully presented themselves in consumer price data, with the core consumer price index unchanged for the month of January.
  • While we expect inflation to firm later this year, we believe the Federal Reserve remains less concerned about inflation and more worried about labor market scarring. The labor market recovery continues to stumble, with an additional 793K workers having filed an initial claim for unemployment insurance last week.
  • President Biden and Chinese President Xi had their first conversation this week since Biden was elected. Reports suggest numerous topics were discussed, but no new policy concerning tariffs was put in place.


Global - Mixed Finish to 2020, Soft Start to 2021

  • The European economy showed mixed, albeit overall subdued, trends at the end of last year. United Kingdom Q4 GDP surprised to the upside with a 1.0% quarter-over-quarter gain. In contrast, national level manufacturing data for December from the Eurozone were mixed, and Eurozone-wide industrial output is expected to fall 0.5% for December. The mixed trends were not just in Europe, with Brazil reporting a large decline in December retail sales but an increase in December overall economic activity.
  • While 2020 finished on a mixed note, it is likely that Europe's economy will show further weakness in early 2021. February PMI surveys are due from both the Eurozone and the U.K. next week. While the services PMI is expected to rise modestly for both economies, they are also expected to remain below the breakeven 50 level. That suggests a further (Eurozone) or renewed (U.K.) contraction in economic activity, and we forecast Q1 GDP declines for both economies.


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