Economic Reports: Week ending Jan. 15, 2021

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Economics Recap (Details below)

Better (or higher) than expected:

• JOLTS report for Nov: 6.527M vs. 6.450M est
• Import Prices for Dec: +0.9% vs. +0.7% est
• Export Prices for Dec: +1.1% vs. +0.6% est
• Industrial Production for Dec: +1.6% vs. +0.5% est
• Capacity Utilization for Dec: 74.5% vs. 73.6% est

On Target:

• CPI for Dec: +0.4% vs. +0.4% est
• Core CPI for Dec: +0.1% vs. +0.1% est
• Business Inventories for Nov: +0.5% vs. +0.5% est

Worse (or lower) than expected:

• NFIB Small Business Optimism Index for Dec: 95.9 vs. 100.2 est
• Treasury Budget for Dec: -$143.6B vs. -$143.5B est
• Initial (weekly) Jobless Claims: 965k vs. 789k est
• PPI for Dec: +0.3% vs. +0.4% est
• Core PPI for Dec: +0.1% vs. +0.2% est
• Retail Sales for Dec: -0.7% vs. -0.2% est
• University of Michigan Consumer Sentiment for Jan: 79.2 vs. 79.5 est

Employment trends stall 

The Employment Trends Index (ETI) was practically unchanged in December, following seven consecutive gains, as the improvement in labor market conditions stalled at yearend. Three of its eight components made negative contributions, led by more initial jobless claims. The deterioration in the ETI comes on the heels of the first decline in nonfarm payrolls since April, as the surge in COVID cases weighed heavily on the leisure and hospitality industry. The Conference Board noted that "it appears unlikely that the labor market will resume its recovery over the next few months." This raises the risk of a double-dip recession in early 2021, but also increases the odds of more fiscal stimulus from the incoming Biden Administration.

Small business optimism falls, job openings dip by smaller amount than expected

The National Federation of Independent Business (NFIB) Small Business Optimism Index for December fell to 95.9 from November's 101.4 level, compared to the Bloomberg estimate of a decrease to 100.2. The index fell below its average value since 1973 of 98 as nine of the ten index components declined and only one improved. The uncertainty index, the percent of the owners thinking it's a good time to expand, sales expectations, and earnings trends all decreased, while current inventories increased. The report added that, "This month’s drop in small business optimism is historically very large and most of the decline was due to the outlook of sales and business conditions in 2021, and small businesses are concerned about potential new economic policy in the new administration and the increased spread of COVID-19 that is causing renewed government-mandated business closures across the nation." On the jobs picture, plans to increase employment also declined.

The Labor Department's Job Openings and Labor Turnover Survey (JOLTS), a measure of unmet demand for labor, showed 6.53 million jobs were available to be filled in November, versus forecasts calling for 6.45 million jobs, and down from October's downwardly-revised 6.63 million figure. The report showed the hiring rate remained at October's 4.2% rate, but separations rose to 3.8% from the prior month's 3.6% pace.

Energy prices surge, markets respond

Oil prices shot up to a 10-month high, posting further gains in the wake of the OPEC+ cuts, and edged a bit higher by a weaker dollar. Some analysts are starting to argue that the rally is getting a little overdone. WTI is above the 200-week moving average, and “it may soon top out,” according to Commerzbank.

LNG prices skyrocket. JKM prices for LNG in northeast Asia are shooting through the roof. Cold weather and higher demand in China and Asia have JKM prices for February delivery well above $21/MMBtu, while individual spot cargoes have traded in the high $30s/MMBtu, breaking all-time record highs. The cost to rent LNG tankers is also breaking records.

OPEC cuts could help shale. The jump in crude oil prices could finally bring positive cash flow to much of the U.S. shale industry, according to Rystad Energy. The firm says cash flow could increase by 32% this year.

OPEC+ compliance slips to just 75%. OPEC+ group’s compliance with the oil production cuts fell to 75% in December 2020—one of the lowest levels since the pact was enacted in May 2020, tanker tracking firm Petro-Logistics said on Tuesday.

Kansas City Fed: shale needs $56 WTI. According to the latest survey from the Kansas City Federal Reserve, oil and gas firms reported that oil prices needed to be on average $56 per barrel for a substantial increase in drilling to occur, and natural gas prices needed to be $3.28 per Btu. The industry’s expectations for future activity improved.

Consumer price inflation rises, mortgage apps jump

The Consumer Price Index (CPI) rose 0.4% month-over-month (m/m) in December, matching the Bloomberg consensus estimate, and compared to November's unrevised 0.2% increase. The core rate, which strips out food and energy, ticked 0.1% higher m/m, in line with expectations and just shy of November's unadjusted 0.2% gain. Y/Y, prices were 1.4% higher for the headline rate, modestly above forecasts projecting a 1.3% increase and north of November's unadjusted 1.2% rise. The core rate was up 1.6% y/y, matching projections and November's unrevised increase.

The MBA Mortgage Application Index jumped by 16.7% last week, following the prior week's 1.7% gain. The sharp increase came as the Refinance Index spiked 20.1% and the Purchase Index grew 8.0%. The noticeable rise in mortgage activity has come amid the recent jump in interest rates, which continued last week as the average 30-year mortgage rate increased 2 basis points (bps) to 2.88%.

Jobless claims surge at the start of 2021 

Initial claims for unemployment insurance surged 181,000 last week to 965,000, the highest level since last August, and well above the consensus of 800,000. It was the biggest jump in claims since March, as layoffs sped up at the start of the year along with the relentless rise in COVID cases and more partial shutdowns across the country. Continuing jobless claims in the prior week increased 199,000 to 5.271 million, while the insured jobless rate picked up 0.2 ppt to 3.7%. 

Both initial and continuing jobless claims, as well as the insured jobless rate, are several times higher than pre-recession, as the labor market remains under immense stress nearly a year after the start of the pandemic. Additionally, almost 12 million people received pandemic unemployment assistance or emergency unemployment compensation in the week of December 26. The latest COVID relief bill extended those benefits until March 14, relieving some of the financial stress on households. This, along with more fiscal support from the incoming Biden Administration, should stem the weakness we are seeing in a number of high-frequency economic indicators at the start of this year and should support the economic recovery in 2021. 

Consumer comfort continues to decline 

The Bloomberg Consumer Comfort Index fell 1.2 points last week to 43.2, down for the eighth consecutive week, and to its lowest level since last July. Surging COVID cases, local government restrictions, and mounting layoffs (as discussed above) likely weighed on Comfort. The survey was completed on January 10, after the Senate runoff elections in Georgia and the attack on the Capitol, which may have additionally depressed consumer attitudes. Comfort declined much more for Republicans than for Democrats or Independents. 

All three Comfort components fell last week. Notably, despite an extension of unemployment benefits and stimulus checks to most households, the personal finances component dropped 2.2 points to 55.9, its lowest level since last May. Weak Consumer Comfort may translate into slower spending growth in the near-term. OECD U.S. CLI indicates stable growth The OECD U.S. Composite Leading Indicator (CLI) rose 0.3 points in December to 99.2, its best in nearly a year, although still below the break-even level of 100, which shows that economic activity remains below trend. This was the eighth consecutive increase in the CLI, indicating a continued recovery since the shutdown trough in April. The rebound in the index was much stronger early in the recovery, but has leveled off to 0.3 points in each of the past three months, pointing to stable growth. 

Import prices up, as U.S. dollar weakens 

Import prices increased 0.9% in December, matching the most in five months, and above the consensus of 0.7%. It was led by a 7.8% rise in fuel prices (mostly petroleum). Nonfuel import prices rebounded 0.4%, driven by nonfuel industrial supplies and materials, such as unfinished metals, chemicals, and lumber. On a y/y basis, import prices were off just 0.3%, the smallest decline in nearly a year. While fuel prices were still nearly 20% lower than a year ago, nonfuel prices increased 1.9% y/y, the most since March 2018, reflecting the notable depreciation in the U.S. dollar. Import prices from most trading regions increased. Notably, import prices from China rose 0.5% y/y, the most since May 2014. 

Budget deficit swells

The federal government posted a budget deficit of $143.6 billion in December, about in line with the estimate from the Congressional Budget Office. On a 12-month total basis, the deficit rose to $3.348 trillion, representing a record 16.0% of GDP. With the latest $900 billion COVID relief bill, signed into law on December 27, and more fiscal stimulus expected from the incoming Biden Administration, the budget deficit will continue to swell in the coming months. 

The 12-month total federal outlays increased a record 49.7% versus a year ago, while receipts fell 2.3% y/y. Government outlays for income security, health, and Medicare surged at record y/y rates, due to the huge fiscal stimulus response to the pandemic and the recession. Even so, net interest payments declined 8.8% on a y/y trend basis, as low interest rates have created fiscal space for the government to support the economic recovery.

Retail sales and wholesale inflation miss forecasts

Advance retail sales for December fell 0.7% month-over-month (m/m), versus the Bloomberg forecast of a flat reading and following November's negatively-adjusted 1.4% decline from a previously-reported 1.1% drop. Last month's sales ex-autos dropped 1.4% m/m, compared to expectations of a 0.2% decrease and November's figure was unfavorably revised to a 1.3% decline from a 0.9% fall. Sales ex-autos and gas were down 2.1% m/m, compared to estimates of a 0.3% decline, and November's reading was adjusted lower to a 1.3% decrease from a 0.8% drop. The control group, a figure used to calculate GDP, declined 1.9% m/m, versus projections of a 0.1% increase and November's downwardly-adjusted 1.1% decrease from a 0.5% decline.

The disappointing report came as nonstore retail sales—which includes online activity—fell, along with sales of electronics & appliances and food & beverages, while activity at food services & drinking places and department stores also dropped. However, sales of motor vehicles, building materials, clothing and gasoline all posted gains. The data shows the impact of the reinstated COVID-19 measures aimed at containing the resurging virus cases, while likely illustrating the sense of urgency of delivering further fiscal relief that President-elect Joe Biden detailed last night in his $1.9 trillion plan.

Inflation still tame

The Producer Price Index (PPI) showed prices at the wholesale level in December rose 0.3% m/m, below forecasts of a 0.4% gain and compared to November's unrevised 0.1% increase. The core rate, which excludes food and energy, increased 0.1% m/m, south of estimates of a 0.2% rise and matching November's unadjusted increase. Y/Y, the headline rate was 0.8% higher, in line with projections to match the prior month's unadjusted gain. The core PPI increased 1.2% y/y last month, below estimates of a 1.3% increase, and compared to November's unrevised 1.4% rise.

Consumer sentiment declines again

The January preliminary University of Michigan Consumer Sentiment Index (chart) declined to 79.2 versus expectations of a dip to 79.5 from December's 80.7 reading. The larger-than-expected decrease for the index came as both the current conditions and the expectations portions of the index declined. The 1-year inflation forecast jumped to 3.0% from December's 2.5% rate, and the 5-10 year inflation forecast increased to 2.7% from December's 2.5% level.

Industrial production up

The Federal Reserve's industrial production rose 1.6% m/m in December, comfortably above estimates of a 0.5% gain, and versus November's upwardly-revised 0.5% increase. Manufacturing and mining output both rose solidly, accompanying a jump in utilities production. Capacity utilization increased to 74.5% versus forecasts calling for a modest gain to 73.6% from the prior month's upwardly-revised 73.4% rate. Capacity utilization is 5.3 percentage points below its long-run average.

The Empire Manufacturing Index, a measure of activity in the New York region, declined to 3.5 in January from 4.9 in December, and below forecasts of a rise to 6.0. However, a reading above zero denotes growth. The report marks the seventh-straight month of expansion, as employment growth decelerated but the expansion in new orders accelerated.