Week in Review: December 25, 2020

A busy week for economic data left the impression that the economic rebound experienced in the third quarter is running out of steam. Most notably, consumer confidence along with personal income and spending all came in weaker-than-expected. Even housing, which has experienced incredible growth in 2020, showed signs of slowing in November.

Consumer spending fell 0.4% in November, the first decline since April.  Renewed restrictions to stem surging coronavirus cases likely played a role.  So too did declining incomes, which fell for the third time in the past four months.  With various government relief programs expiring, uncertainty as to when additional stimulus might be passed, and coronavirus cases surging, consumers appear to be taking a more cautious approach. That appeared to be corroborated by consumer confidence which defied expectations by falling, not rising, in December to it lowest level since August.

New home sales fell 11% in November. However, compared to a year ago, starts were up nearly 21%. Housing data is notoriously volatile, making longer-term trends more relevant than any single data point.  Existing home sales fell 2.5%, the first decline in five months. Reflecting the strength of the housing market in 2020, the inventory of existing homes for sale fell to 1.28M, marking the lowest level since records began in 1982.

Inflation as measured by the Fed’s preferred gauge, core PCE, was flat in November, and up just 1.4% Y/Y.  At current levels, inflation remains a non-factor in the Fed’s monetary policy calculus.

Weekly jobless claims fell nearly 90k to 803k. Continuing claims also improved, falling from 5.51M to 5.34M.