By Kevin Kastner
WASHINGTON (MaceNews) – As a result of surging COVID cases, the upcoming Thanksgiving holiday will be the strangest on record, with a Zoom screen at the other end of the table rather than relatives.
It could prevent the spread of COVID, but it may also prevent the usual Thanksgiving sporting event in many households. No, not the football games — the political discourse. Too bad, there was plenty to discuss this year.
In the aftermath of Election Day, the preliminary Michigan Sentiment index declined in November, reflecting a large deterioration in the economic outlook. Those that were pleased with the election results and those that were not haven’t changed their positions, so there is no expectation of a large revision when the index is updated on Wednesday.
The Conference Board’s measure released on Tuesday will present a similar picture. After a small decline in October, the November report will reflect the impact of both the election results and the aftermath.
As with the Michigan data, the bigger concern is not the immediate reaction to the election outcome, but also how consumers view the outlook for business activity, jobs, and finances under the new administration.
THIRD QUARTER GDP REVISIONS LIKELY IGNORED AS COVID CASES SURGE
GDP growth in the third quarter is expected to be only modestly revised after rebounding by 33.1% in the advance estimate. No matter the outcome, though, the data are backward looking and will attract little attention. Analysts are already concerned that the resurgence of COVID cases in October and November could make a severe dent in fourth quarter growth.
For the third quarter, control group retail sales growth was revised down in September and up sharply in August, suggesting that the PCE component will be roughly unrevised. That component was the key driver in the third quarter rebound.
The September home building data was revised up when the October data were released this week. Residential fixed investment rose by 59.3% in the advance estimate for the quarter and is likely to be revised higher in Wednesday’s second estimate.
Nonresidential fixed investment is expected to be revised lower in Tuesday’s estimate, reflecting the sharp decline in September nonresidential construction that was released earlier this month.
Business inventories rose by 0.7% in September, data released this week showed. Assumptions made before the advance GDP report looked for large gains in factory and retail inventories offset by a drop in wholesale inventories.
The actual data released since then have shown a flat reading for factory inventories and a small gain for wholesale inventories, offsetting each other and suggesting little revision to the inventory category in Wednesday’s report.
The September trade gap narrowed, as the advance GDP estimate had assumed, so only a small revision to the third quarter net export is expected. The gap will remain significantly larger than it was in the second quarter.
INCOME, SPENDING GROWTH MAINTAIN UPWARD TREND IN SEPTEMBER
The employment and retail sales data suggest further increases in personal income and consumption in October.
Nonfarm payrolls rose by only 638,000 in October after much larger gains in August and September, while hourly earnings posted a modest 0.1% gain, and the average workweek was unchanged. As a result, a smaller wage and salary gain is expected in Wednesday’s data.
In addition, October retail sales rose by only 0.3% but will lift the proprietors’ income category for another month.
On the other hand, the continued decline in initial claims filings and the expiration of enhanced Federal benefits will further reduce the state unemployment payments category.
The “other” current transfer receipts category, which includes the direct stimulus payments to households, will also be impacted by the lack of further stimulus measures.
Retail control group sales, which exclude motor vehicles, gasoline, building materials and food services, feed directly into the PCE measures. That category rose by only 0.2% in October after a 1.0% gain in September. As a result, PCE growth is likely to slow this month.
Consumer prices were flat in the month, so both overall and core PCE prices should be roughly unchanged and keep the year/year rates below 2%.
With nominal PCE expected to tick up, real PCE should increase by an equal amount without any price offset.
REGIONAL DATA POINT TO SLOWER MANUFACTURING, SERVICES GROWTH
The few regional data released to this point suggest that the factory and services sectors slowed in November.
For manufacturing, the Empire State, Philadelphia Fed, and Kansas City Fed readings all declined in the month but remained above their breakeven points. Concerns about skilled labor shortages and the COVID-19 resurgence were cited as reasons for the slowdown.
As for services, the Kansas City Fed’s index, the only services data released to this point, declined in November.
Coming up this week, the first national reading will be released on Monday with the flash Markit release for manufacturing and services. Both ticked up in October to their highest readings since the COVID shutdowns began.
Following that, the Richmond Fed’s data for both manufacturing and services will be released on Tuesday. The region also saw continued improvement in October.
The Philadelphia Fed’s services index for November will be also be released on Tuesday. The index rose sharply in October, but increased COVID cases in the Northeast are a headwind against a further gain in November.
U.S. Manufacturing and Nonmanufacturing Conditions
Sources as listed
HOUSING MARKET SHOWS NO SIGNS OF LETTING UP
The October home construction and existing homes sales data released this week were overwhelmingly positive.
Housing starts surged in October and building permits held steady at an elevated rate, based on data released on Wednesday. However, a decline in completions will cut into the severely depleted supply of homes for purchase.
Single-family home building rose sharply, while multi-family building was roughly unchanged, in keeping with recent demand trends toward more space and distance between homes.
The existing home sales data for October released Thursday continued their upward trend, hitting the highest point since February 2006 and lifting 2020 sales above the full-year 2019 total.
However, the median existing home sales price also moved higher in the month as supply contracted further. The NAR repeated that increased supply, particularly for lower-priced homes, is needed to offset the very brisk pace of demand.
Data for October new home sales will be released on Wednesday and is expected to rebound after a decline in the previous month. Tight supply and strong demand have kept upward pressure on prices and restricted sales in some areas for first-time buyers, as noted by the NAR and other agencies.
The Case-Shiller and FHFA home prices measures for September will both be released on Tuesday morning and should continue to show solid price gains.
JOBLESS CLAIMS REMAIN ELEVATED EVEN WITH A DOWNWARD TREND
The level of initial claims rose by 31,000 to 742,000 in the November 14 week, breaking the recent downward trend. The shorter reporting period next week could cause a surprise outcome in next week’s release that would be remedied by revisions in the following week.
The data will be released on Wednesday rather than Thursday to accommodate the Thanksgiving holiday.
Even if initial claims rise solidly, the four-week average is likely to slip further. A 758,000 level in the October 24 week rolls out of the equation this week.
Continuing claims fell by 429,000 to 6.372 million in the November 7 week. As with initial claims, the level of continuing claims should continue to decline but remained well above pre-COVID levels.
The improvement in filing levels since September is due in large part to an expiration of benefits, with little help in sight considering the political divides at the moment.
Here are the key data events for the coming week (U.S. Eastern Time):
MONDAY, NOV. 23
8:30 am Chicago Fed national activity index (Oct)
9:45 am Markit flash manufacturing and services (Nov)
TUESDAY, NOV. 24
8:30 am Philadelphia nonmanufacturing Index (Nov)
8:55 am Redbook same store sales (Nov 21 Week)
9:00 am Case-Shiller national home price index (Sept)
9:00 am FHFA home price index (Sept)
10:00 am Consumer confidence index (Nov)
10:00 am Richmond Fed index (Nov)
WEDNESDAY, NOV. 25
7:00 am Mortgage Bankers weekly applications (Nov 20 Week)
8:30 am Initial jobless claims (Nov 21 week)
8:30 am Gross domestic product revision (Q3 Second Estimate)
8:30 am Durable goods orders (Oct)
8:30 am Advance trade report (Oct)
10:00 am New home sales (Oct)
10:00 am Consumer sentiment index (Nov final)
10:00 am Personal income and spending (Oct)
1:00 pm Baker-Hughes rig count (Nov 27 week)
2:00 pm FOMC minutes (Nov 4-5 Meeting)
THURSDAY, NOV. 26
Thanksgiving Holiday
FRIDAY, NOV. 27
None
Separately, the outlook for the SPX from Extract Analytics is one of waiting to see how the index handles 3500 support:
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Contact this reporter: kevin@macenews.com.
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