This Week's State Of The Economy - What Is Ahead? - 21 August 2020

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

This Week's State Of The Economy - What Is Ahead? - 21 August 2020

U.S. - Bringing Down the Hammer

  • Despite indications of lost momentum elsewhere, residential construction activity is picking up steam. A key survey shows confidence among home builders in August tied an all-time high set in 1998 and housing starts figures released this week handily exceeded expectations.
  • Existing home sales rose 24.7% in July as the annualized pace of sales rose above 5.8 million.
  • The leading economic index increased in July, but for the second straight month it did so at a slower pace.
  • The number of people filing for unemployment insurance crested back up over a million in the first week of August.

 

Global - How Quickly Will Japan’s Economy Bounce Back?

  • COVID-19 has wrought a far lower human toll on Japan than in most of Europe or the United States. Japan has a total of close to nine deaths per million people, in comparison to 530 per million in the United States or 587 per million in Italy.
  • Despite a less severe lock down, the Japanese economy has taken a nosedive like many of its developed market peers. Data on Q2 real GDP growth in Japan was released this week and showed a 27.8% annualized contraction.
  • Europe’s August PMI surveys were mixed. The U.K. PMIs firmed further, including the strongest reading for the services PMI since 2013. In contrast the Euro zone services PMI softened, but remained (just) in growth territory.



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On the housing front, new home sales dropped more than expected in August, though an upward revision to July results left us about where everyone expected us to be year-to-date.

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Sales of existing homes fell 2.2% to a 5.38 million-unit pace in September, but sales and prices were still up enough in the quarter that they will add solidly to Q3 GDP growth.

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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 real estate sector has been significantly affected by rising interest rates, with total housing starts falling 8.1% in September. Peering ahead, the forward-looking Leading Economic Index points to a recession in the coming year.

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Back to the economy, issues with supply constraints remains a broken-record reference, but data this week highlighted the economy\'s resilience in spite of those continuing problems.

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An inter-meeting rate cut by the FOMC did little to stem financial market volatility, as the number of confirmed COVID-19 cases continued to climb.

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Real GDP jumped a record 33.1% during Q3, beating expectations. A 40.7% surge in consumer spending drove the gain.

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April nonfarm payrolls confirmed what we already knew—the labor market is collapsing. By the survey week of April 12, net employment had fallen by 20,500,000 jobs.

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I’ll wish you a Happy Earth Day anyway. Don’t expect a card this year. While the Earth continues to thankfully revolve at a steady rate, rising mortgage rates appear to be slowing residential activity

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Restrictions from a renewed COVID outbreak in China, regulatory changes weighing on local financial markets and a potential collapse of Evergrande have all contributed to a slowdown in Chinese economic activity.


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