Month: January 2021

By Thomas Cooley and Peter Rupert

GDP

The BEA announced that the advance estimate for Q4 real GDP increased 4.01% on an annual basis. Final Q3 growth was 33.44%. Over the year real GDP fell 3.5%, a historic collapse. But GDP in the second half of the year has continued to bounce back after the first half disaster. Given that continued increase there is some evidence that the recovery will look “V” shaped in the end.

Real personal consumption expenditures increased 2.5% in Q4 and was down 3.9% over the year. Real gross private investment grew at 25.3%, with equipment investment increasing 24.9% and residential structures up 33.5% for the quarter.

The personal savings rate fell slightly but remains elevated at 13.4%.

The BEA released personal income today and showed that real disposable personal income increased 0.22% over the month while real personal consumption expenditures declined 0.61%. It appears that after the wild gyrations things may have settled down somewhat.

Unemployment Claims

Initial claims and continued claims were also released this morning. Both showed improvement with initial claims falling 69,000 and continued claims down 203,000. The composition of the unemployed has also been changing with a decrease in the share of job losers and an increase in re-entrants.

The economy continues to show signs of underlying strength but obstacles will remain until the pandemic is under control enough for services and the retail sector to recover.

Count us among those who believe the Fed has done all it can or should to support the recovery. With Powell at the Fed and Janet Yellen at the Treasury we can be assured of thoughtful cooperative monetary and fiscal policy as the year progresses.

By Thomas Cooley and Peter Rupert

December’s employment report ends a dismal year on a dismal note. The BLS establishment data showed a decline of 140,000 workers. Private payrolls fell by 95,000 as the government shed 45,000 jobs. The recent lockdowns from the spike in COVID cases and hospitalizations drove the leisure and hospitality sector to reduce employment by 498,000 while retail trade employment grew by 120,500. Since the large declines in March and April the labor market has recovered about 54% of those losses. Overall, the labor market lost about 9.5 million jobs over the year.

For a while, after the March meltdown, it looked like the economy, aided by a robust stimulus response, might be able to bounce back. The optimistic view (not our view!) was that we might have a v shaped recovery. But the government’s pathetic response to the pandemic, failures of testing, mitigation measures and lack of leadership, made the resumption of economic activity dangerous and halting and the second surge has slammed on the brakes.

Average weekly hours fell slightly to 34.7 and average hourly earnings increased from $29.58 to $29.81. Average hourly earnings in the leisure and hospitality as well as the manufacturing sector saw a huge increase early on in the pandemic as the lower paid workers lost their jobs but then has continued to come down as many of the workers returned to work. The construction sector did not see those massive swings in average hourly earnings.

The household data showed very little movement. The labor force increased slightly, up 31,000 and the number employed up by 21,000. The labor force participation rate and the employment to population ratio were unchanged and remain well below the pre-pandemic levels. The unemployment rate also remained constant from the previous month.

The composition of the unemployed has also been changing with more of the unemployed coming from reentrants and fewer from job losers, although the bulk of the unemployed are from job losers. Moving forward, the number of those unemployed long-term, 27 weeks or more, will continue to climb since the pandemic-related losses are only in the 9th month or so.

Initial claims have been quite sluggish and remain elevated, indeed we are still seeing around 800,000 people applying for first time unemployment insurance every week. Moreover, the not seasonally adjusted claims rose by about 80,000. Continued claims, however have been trending down, but only slightly so.

There is certainly a strong desire to resume a normal pace of activity. People are tired of lockdowns and remote lives. But, right now the virus is in control. The great hope is that widespread vaccination will enable things to return closer to normal over the next several months. But the roll out is being brought to you by the same architects who designed our initial response and our testing programs. Temper your optimism with that thought.