Weak Data From Chase

In this article, we will include a few tracking updates on how the economy looks in real-time as we end the year. There has been differing data on the consumer. We’ve seen some data points suggest consumer confidence is high and that they expect to spend a lot more in 2021. The BAC card data showed promise. Plus, retail stocks have been spiking, but that might be because of an anticipated rebound in 2021, not because holiday shopping looks good.

The retail sales report was disappointing. When you pair that weakness with the spike in jobless claims, it’s logical to expect even worse results in December. We're all very interested to see how the retail stocks react to mostly bad earnings results. Target stock has recently underperformed the market. It’s down 5.2% since November 23^rd, while the S&P 500 is up 3.7%. The retail sector is up 6.1% in that period.

This brings us to an updated data series by JP Morgan. As you can see from the chart above, since Black Friday, the 7 day average of consumer card spending has been consistently below last year. It adds up to a decline of 5.4%. That is very far from the projections for the holiday shopping season in November. However, you must keep in mind that they might not have considered added lockdowns in their projections. 

Europe Was Hit Hard

Europe was hit hard by the latest wave of COVID-19 which caused lockdowns. In a surprise to no one, lockdowns hurt their economy. Many people argued America would never do lockdowns again, but there have been added restrictions and some lockdowns are here. There is no perfect way to handle this pandemic because no matter what policymakers do, people will die and the economy will be hurt. 

It’s worth noting that Europe’s activity tracker never got as bad as it did in the spring. Since America is going with less restrictions and we are closer to the vaccines going out at mass scale, America’s slowdown should be a little less bad than Europe’s. This is not a double-dip recession.

No Stimulus Yet

Congress passed a 2-day budget to avoid a shutdown on Friday. They are kicking the can down the road as far as they can. Congress only acts when it needs to which is why deadlines are either met at the last minute or extended a little while longer. In theory, a few days longer doesn’t make a difference as long as it gets done.

The problem is there should have been a stimulus in October to prevent this weakness from late November through January. The Fed has done all it can to keep the stock market going and financial conditions loose, but the federal government has dropped the ball. This is their last-ditch effort to avoid disaster. Something will likely get done soon, but they certainly are making things unnecessarily interesting.

Real-Time Population Survey Doesn’t Look Good

The real-time population survey is looking grim just like the last 2 weeks of data from the initial claims report. As you can see from the chart below, in the week of December 6^th to the 12^th, the prime-age employment rate fell from 69.9% to 68.6% which is a drop of 1.3%. You can see the real-time rate has been below the current survey, but they have been correlated which is bad news for the December BLS report. Some are predicting job losses in December.

On the positive side, the real-time data shows in the same period the prime-age labor force participation rate rose 3 tenths to 78%. The prime-age unemployment rate rose 2.1% to 12.1%. Obviously, there is no chance it rises to that level but focus on the delta. 

It implies weakness in December. The unemployment rate will rise modestly since there will be job losses. On the positive side, the prime age workweek length rose 0.8 hours to 25.6 hours. Among those who worked, 28.5% made less in December than they did in February. In mid-April, it was 37.4% less which isn’t that much worse than now.

That’s a pretty bad data point when you consider the general perception is the economy significantly improved from the worst of the recession. The breakdown in December is 49.8% made about the same as they made in February. 18.5% made more. However, 4.4% made 75% of what they made in February, 3.5% made half, and 5.1% made a quarter. 15.5% are not employed.

Weekly NY Fed Economic Index

Next, we have the NY Fed’s weekly economic index. In the week of December 12^th, it slipped for the 2^nd straight time to -2.7. As you can see from the chart below, that’s the weakest since November 21^st, but it’s not that big of an issue yet. This isn’t the worst decline it has had in this recovery. It wouldn’t be surprising if it ends up being the worst, but so far, we aren’t even close to a double-dip recession.

The Atlanta Fed Q4 GDP Nowcast rose from 11% to 11.1% on December 17^th. That’s because the estimate for real residential investment growth increased from 31% to 33.1% due to the housing starts report. That’s a massive growth rate as the housing market is on fire. It certainly is weird to discuss a slowdown with double-digit GDP growth, but the comp is easy and the slowdown only started towards the end of November.

Conclusion

Most of the latest economic data is headed in the wrong direction. I suspect it will continue until the vaccines go out on a mass scale. The stimulus might also prevent further weakness. Congress is dragging its feet on getting something done like it usually does. 

Investors are most interested in seeing if the weak holiday shopping season hurts retailers’ stocks. When they report in January and February, they will surely mention how the latest data is promising (due to the stimulus or the vaccines).