The Pulse – What’s happening in the Economy and the Capital Markets: 12/19/20 – 12/31/20|
Reading Time: 4 minutes
2020 ended with a strong December for the markets as momentum continued from November’s events. Economic data continues to be mixed with improvements in industrial-related data and varied consumer data. Mastercard reported online commerce grew rapidly this holiday season. The labor market is improving; however, all unemployment numbers remain elevated compared to historical levels.
The markets finished the year on a high note thanks to the COVID-19 vaccine rollout and expectations of global economic recovery in the second half of 2021. More economically sensitive markets, such as small caps (e.g. Russell 2000), emerging markets and the energy sector were leaders for December. Indexes that reflect broader economies, such as the S&P 500 and Dow Jones, as well as those that comprise the developed markets, all also increased.
December 2020 followed historical suit, reflecting positive trends.
- The Chinse government exerted influence over Alibaba and its public offering of its Alipay affiliate, while the U.S. and European governments further scrutinized Google’s parent, Alphabet, and Facebook.
- Regulators with economically suffering constituents are keeping eyes on larger and tremendously profitable companies whose business models enabled weathering the COVID-19 recession and those whose stock prices increased due to their fortress balance sheets.
The Economic News
Mastercard’s SpendingPulse™ survey revealed that online sales grew 49% during the 2020 holiday season, compared to 2019.
- Online commerce accounted for roughly 20% of overall retail sales versus 13% in 2019.
- Home furnishings experienced the strongest growth of any sector – +16% overall and 31% online growth.
- Home improvement increased 14%, with online sales up 80%.
High-frequency data continues to show modest improvements month over month (e.g. staffing index, gasoline demand, air travel) as the economy generally, though unevenly, improves.
- Most notable is the improvement in air travel with several days exceeding 1 million passengers. Leisure travel during the holidays was a large driver of the improvement.
- Lodging is still weak, despite the improvements in air travel.
The end of year government data, which includes November activity, highlighted a more concerned consumer and manufacturing data that was slightly weaker than expected.
Consumer Confidence (source: the Conference Board) was significantly below expectations and well below October.
- “Present situation” component was 90.3 versus 105.9 in October
Personal Income declined 1.1%, slightly worse than expected and below October
Personal Spending declined 0.4%, slightly worse than expected and much worse than October’s growth of 0.3%.
Durables Goods (ex-Transportation) November projected at 0.4%, below expectations and below October’s 1.3% gain.
Capital Good Orders (a leading indicator) November projected at 0.4%, below expectations and below October’s 1.6% gain.
Focus of the Week – The Labor Market
The labor market has been at the epicenter of the COVID-19 recession.
Coming into 2020, the labor market had multi-decade low rates of Under-employment and Un-employment.
*Under-employment includes impact from part-time and marginal labor force.
The job destruction from COVID-19 and requisite shutdowns were massive. The economy has recovered a little more than half the damage from the initial shutdowns, however, remains at 2014 levels, having lost roughly half a decade’s improvements.
Under-employment (U-6) Rate – 12.0%
Unemployment (U-3) Rate – 6.7%
The Labor Market still has significant healing ahead.
- Initial jobless claims are still at record levels and well above peaks of prior recessions, even though down 90% from the March highs.
*Initial jobless claims are those filing for unemployment insurance for the first time
Initial Filings – 787,000
Note: Shading = recessions
Workers continuing to file for unemployment insurance tells a similar story to Initial Claims – the primary difference is that Continuing Claims are below the levels of the Financial Crisis.
A Few Stories that Caught My Eye
- China takes on tech giants
- Europe’s largest automakers granted merger greenlight
- Home for the Holidays takes on new meaning through e-commerce
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