Taking a quick break from the regularly scheduled programming to wish all of you a very happy and healthy holiday season. This will be the last digest of 2020 and it also marks two years of UnBenchd. I’m so incredibly thankful for all of you who have joined the journey, I hope it’s been as incredible for you as it has been for me. Here’s to a brighter, better, and, most importantly, healthier 2021 – cheers!
Santa’s cutting back
Retail sales fell 1.1% in November, which was a bigger drop than anticipated. Retail sales for October were revised downward to -0.1% vs the initial +0.3% reported. Sales were weaker across the board – clothing, restaurants and bars, electronics and appliances, furniture, sporting goods, etc. The only categories that saw increases in spending were grocery and building materials, both of which would indicate people are spending more time inside. Given the surge in cases and new wave of government lock-downs, this makes sense.
Moral of the story: October’s revised numbers mark the first decline in retail sales since April and doesn’t bode well for the holiday shopping season that could’ve been the saving grace for many struggling retailers around the country. Consumer spending is the largest contributor to the US economy, and based on these numbers, I’m not too optimistic about what economic growth will be in the fourth quarter of 2020. At the same time, it does seem like Congress is making progress toward a stimulus bill, which should help prop us up until we start making money moves next summer post-mass vaccinations.
On the back of the weak retail sales report, the FOMC concluded its monthly policy meeting and announced, as expected, that interest rates would stay near zero for the foreseeable future. Remember the Fed’s two mandates are keeping prices in check (i.e. keeping inflation around 2%) and maintaining full employment. Their current accommodative policy is unlikely to change meaningfully until the labor market returns to normal, which could be around 2023 or even later.
Moral of the story: While the Fed can do its part to stimulate the economy, it’s difficult for monetary policy (from the Fed) alone to get us out of this mess – it has to come hand in hand with accommodative fiscal policy (from the government). Given Biden’s pick for Treasury Secretary (prior Fed Chair*woman* Janet Yellen), I would anticipate well-aligned policy from both sides of the equation as the Biden administration takes the reins next month.
The uphill battle continues
New unemployment claims are on an upward trajectory again, increasing each of the last three weeks. New claims came in at 885k last week and about 20.6m people are receiving some form of unemployment benefits at this point. Getting employment under control requires getting the virus under control. At least the Pfizer vaccines are already being delivered and the Moderna vaccine deliveries will begin on Monday after the FDA’s approval. Unfortunately, the UK just imposed a fresh set of lockdowns to combat a new strain of the virus that spreads 70% more easily than the original.
Moral of the story: About 12m people are receiving unemployment benefits through funds from prior COVID-19 relief packages passed by Congress. These benefits run out by the end of the year unless Congress gets another stimulus package passed before they leave for the year. It’s expected that we’ll see something this weekend but still waiting on that as of Saturday night…