This Week's State Of The Economy - What Is Ahead? - 22 January 2021

By: Taro Chellaram /Wells Fargo Economics & Financial Report/Jan 23, 2021

This Week's State Of The Economy - What Is Ahead? - 22 January 2021

U.S. - Housing Remains at the Forefront of the Recovery

  • Housing starts jumped 5.8% during December. Single-family starts soared 12%, while multifamily starts dropped 13.6%. Total starts are running at a 1.67 million-unit pace, the strongest pace since 2006. Existing home sales rose 0.7% to a 6.76 million-unit pace in December. Mortgage applications for purchase are up 14.7% over the year as of January 15.
  • The NAHB Housing Market Index fell to 83 in January. Builder confidence remains exceptionally high, but the index has slipped in recent months alongside rising material prices and the latest COVID surge. Initial jobless claims fell to 900K during the week ended January 16. Despite the drop, new filings remain elevated, which means another negative print for payrolls in January is possible.

 

Global - Mixed Fortunes for the Global Economy

  • This past week saw some reports showing mixed fortunes for key international economies. China reported another solid GDP increase in Q4, while for full-year 2020 GDP rose 2.3%, the only major global economy to enjoy positive growth last year. Elsewhere, Japan and Mexico appear to be experiencing a steady rather than especially strong rebound, while Eurozone PMI surveys hint at a renewed contraction across the region in late 2020 and early 2021.
  • For now, central banks are sitting on the sidelines. The European Central Bank held monetary policy steady and, with regard to its asset purchases, said that it might not use its full envelope of asset purchases, but equally that its purchase program could be re-calibrated. The Bank of Canada kept policy unchanged, though hinted at an eventual tapering in bond purchases as confidence in the economic recovery improves, while the Bank of Japan held monetary policy unchanged at its meeting this week.



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Over the past year, the housing market has become white-hot.

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The Leading Economic Index (“LEI”) continued to flash contraction as early signs of labor market weakening are starting to emerge. Meanwhile, a batch of housing data confirmed that a full-fledged housing market recovery is still far off.

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Minutes from the January 28-29 FOMC meeting indicate the coronavirus will not push the Fed to cut interest rates, and for the most part housing and manufacturing survey data this week supported that view.

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More job seekers also lifted the participation rate to 62.4% and thus easing some tightness in the job market even as payrolls expanded.

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e move into the Labor Day weekend celebrating the 235K jobs added in August, while simultaneously lamenting that it was about half a million jobs short of expectations.

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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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Total payrolls rose by 263K in November, with the unemployment rate holding steady at 3.7% and average hourly earning rising by 0.6%.

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The FOMC has made it clear that it needs to see inflation slowing on a sustained basis before pivoting from its current stance. The data seems to be going in multiple directions all at once.


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