In Peach & Mint: Season 2

Finding silver linings 

New unemployment claims last week spiked to 965k (vs the 800k expected). This is the highest weekly number since August last year. Continuing claims, which is more indicative of the longer-term unemployment trend, also increased, for the first time since November. The increase in jobless claims was most acute in states with strict government shutdowns like California, where even outdoor dining is now prohibited. 

Moral of the story: The December jobs report, combined with the weekly unemployment updates we’ve gotten so far in January, are clearly indicative of a struggling labor market. The one silver lining to this data is that it’s likely to generate bipartisan support for the majority of Biden’s proposed $1.9T stimulus plan, which includes additional $1.4k checks to individuals and small business support. 

Instagram vs. reality 

Retail sales fell further in December as continued increases in COVID-19 cases pressured state and local governments to enforce additional restrictions. Retail sales fell 0.7% in December, and November’s data was revised down to a 1.4% decline (from the 1.1% decline previously reported). Core retail sales (excludes cars, gas, building materials and food) fell even more aggressive by 1.9% in December, following a 1.1% decline in November. 

Moral of the story: There’s a clear difference in what’s actually happening in the economy versus what’s happening in the stock markets today. The jobs data is just one point, but the December retail sales report just added more evidence to point toward the weakness of the real economy. We saw stocks pull back a little this week, but the disconnect is a little concerning. 

Fed Speak 

Remember the discussion on how a few different things are at play to make inflation a potential concern for the economy in the near future? The impending risk of inflation has been in the back of investors’ minds recently but Fed Chairman Jerome Powell spoke Thursday afternoon and tried to ease some of those concerns. He pointed to the slack in the labor market, which is unlikely to pressure wages to support higher and sustained inflation. 

Moral of the story: The Fed’s messaging remains “lower (interest rates) for longer” as it continues to fire everything in its arsenal to keep the economy afloat. According the Powell, the economy is “far from their goals” and taking the foot off the accommodative policy pedal is not happening anytime soon. 

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