This Week's State Of The Economy - What Is Ahead? - 17 July 2020

By: Taro Chellaram /Wells Fargo Economics & Financial Report/Jul 18, 2020

This Week's State Of The Economy - What Is Ahead? - 17 July 2020

U.S. - A Glimpse of the Rebound that Might Have Been

  • Two countervailing themes competed for attention this week in financial markets. The first is that for the most part, economic data continue to surprise to the upside and do not yet rule out prospects for that elusive V-shaped recovery. The chart to the right plotting the level of retail sales offers a great example: that is about as close to a V as you get.
  • But the recovery is in jeopardy of being held back by the very thing that got us into this mess to begin with. Corona virus infections continue to mount and even hit a single-day record north of 78K on Thursday, as officials and businesses are increasingly requiring residents and customers to wear masks to help stop the spread.

 

Global - Central Banks on Hold; China Data Somewhat Mixed

  • The European Central Bank and Bank of Canada both met this week. As expected, no major policy changes were made and both central banks remain committed to keep interest rates low and asset purchases in place for the time being.
  • China GDP data beat expectations, signaling the recovery in the world’s second-largest economy is gathering momentum. While the Q2 headline GDP print was stellar, June retail sales missed consensus expectations and may be calling into question the strength of the recovery as we head into the second half of the year.



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The Federal Reserve can afford patience thanks to a resilient labor market. During April, total nonfarm payrolls rose by 175,000 net jobs, continuing a string of solid monthly payroll additions.

Rising COVID-19 Cases Put A Damper On Re-openings

The rising number of COVID-19 infections gained momentum this week, with most of the rise occurring in the South and West. The rise in infections is larger than can be explained by increased testing alone and is slowing re-openings.

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The U.S. economy expanded at a stronger-than-expected pace in Q3, with real GDP increasing at a robust 4.9% annualized rate.

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While we were picking up tree limbs from the yard, data released this week generally showed a stronger economy in August than many expected in the wake of surging COVID cases.

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Oil prices went negative for the first time in history on Monday as the evaporation of demand collided with a supply glut. In the past five weeks, 26.5 million people have filed for unemployment insurance, or more than one out of every seven workers.

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Economic data were downbeat this week, as downward revisions took some of the shine out of the marquee headline numbers. Despite the somewhat weak start to Q1, economic growth continues to trek along.

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Retail sales fell 0.7% in December, the third straight monthly decline. Sales are still up 2.9% over the year, however.

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U.S. employers added 225K new workers to their payrolls in January, which handily beat expectations. But the factory sector shed jobs for the third time in four months, and net layoffs were reported for finance and retail as well.

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The biggest economic news was Fed Chair Powell presenting the Federal Reserve\'s semiannual Monetary Policy report to Congress this week.

Where Will That $2 Trillion Come From Anyway?

Net Treasury issuance is set to surge in the coming weeks and months. At present, we look for the federal budget deficit to be $2.4 trillion in FY 2020 and $1.7 trillion in FY 2021.


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