KEY DATA: Sales: +4.3%; Over-Year: +26.6%; Prices: +15.5%/ LEI: +0.7%/ Phil. Fed (Manufacturing): -6 points/ Claims: +31,000
IN A NUTSHELL: “The economy keeps rolling along, though we do have to watch to what impact, if anything, the surging virus has on the labor market.”
WHAT IT MEANS: There are few signs that the economy is doing anything but expanding solidly, at least through October and into early November. The housing market remains on fire. Existing home sales rose solidly in October, and it is likely that the increase would have been a lot greater if there were any homes left for sale. The sales pace is back to where we saw it during the housing bubble, which is worrisome, at least if you are an economist. The inventory is at a record low, when measured by sales rate. And sometimes, economics actually works. The lack of supply and robust demand has caused prices to skyrocket. Can you say housing bubble?
The Conference Board’s Leading Economic Index rose strongly in October, matching the large gain posted in September. In other words, there are no signs of a major, or maybe even a minor slowdown. Obviously, we will not see growth in the fourth quarter anywhere near the 33% third quarter gain, but it should strong when you consider what would be a normal strong level.
On the manufacturing front, the Philadelphia Fed’s survey of manufacturers’ index eased in the first half of November. But the level is still quite high for just about all components. Maybe most importantly, firms increased their hiring. The expectations index dropped more sharply, and a growing percentage of firms indicated that activity could decline in the next six months. But again, optimism is still quite high.
Initial claims for unemployment insurance rose last week, breaking a string of four weeks of steady decline. However, one week does not make a trend. Since the weekly claims number peaked at the end of March, the decline has been steady but broken frequently with a few weeks of increases. We would have to see about a month of increases before it might be concluded that the labor market is starting to weaken.
IMPLICATIONS: For most politicians COVID-19 is like the weather: They like to talk about it, but they don’t do anything about it. However, with the virus running rampant, some political leaders are starting to take tentative steps to reimpose restrictions. Those actions are hardly universal, and the public is clearly suffering from Covid-fatigue and is either unwilling or unconvinced of the need for new restrictions. Thus, we will not be facing anything like what happened in the spring. Nevertheless, the steps to reduce virus cases, hospitalizations and deaths are likely to cause workers to be laid off, unemployment claims to rise and long-term unemployment, which is already rising, to increase even faster. The question is, how much will the government actions impact the economy going forward? Despite the number of deaths, politics seems to be the driving force in how the problem is being handled. And yes, vaccines are coming on board. But they will do little to slow the spread for at least three to six months. Is stronger action, such as requiring masks (if you even think that is strong) needed? Of course. Will most governors or mayors take any major action? I doubt it. And you can be sure the federal government will not take the lead. So, the number of deaths will likely jump over the next few months. To put things in perspective, here are some cities where the number of deaths from COVID-19 has equaled or exceeded their population (from largest): Buffalo, Winston-Salem, Richmond, Boise, Baton Rouge, Birmingham, Salt Lake City, Tallahassee, Providence…