The Weekly Bottom Line

Our summary of recent economic events and what to expect in the weeks ahead

Date Published: October 23, 2020


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  • Covid-19 infections continued to rise this week, nearing record highs set in July. Concerns regarding this trend weighed on markets, but progress on a new stimulus package helped improve the mood later in the week.   
  • Positive housing reports reinforced the sector’s position as a bright spot in the U.S. economy. Existing home sales soared 9.4% in September, blowing expectations out of the water, while price growth accelerated further.
  • Fast-rising prices are good news for builders who have recognized the need to build more homes. Housing starts also pushed higher in September (+1.9%), with gains concentrated in the single-family segment.

Housing Market Remains A Bright Spot

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Chart 1: home resales surge higher in september to yet another post great recession record

Markets continued their choppy ride this week, as investors weighed a rising trend in new infections against hopes for fiscal stimulus. Signs of progress on the latter helped put markets in a better mood later in the week, while a strong housing report provided an added fillip.

The September existing home sales report reinforced the notion that the housing market remains a bright spot, even as most sectors of the economy continue to struggle under the weight of the pandemic. After gains moderated in the two months prior, resale activity surged by 9.4% in September, blowing expectations out of the water. Sales are now at a new post-Great Recession high and nearly 14% above their pre-pandemic level (Chart 1). Details from the report suggested that the purchasing of homes in vacation destinations – a trend that appears to have been supported by an improved flexibility of working from home – played a part in boosting overall sales. While the latter are up 21% year-over-year (y/y), sales in vacation destination counties accelerated over the summer and are up 34% y/y according to the National Association of Realtors.

Chart 2: months supply of existing home inventory at record low

With low mortgage rates and a still-improving labor market, we expect resale activity to continue grinding higher, but at a more moderate pace. A sharp acceleration in home price growth is eroding affordability and a record-low supply of housing means that markets will remain tight. Housing inventory now sits at just 1.47 million or a record low of 2.7 months at the current sales pace (Chart 2). As a result, the median existing home price has accelerated to a sharp 15% y/y – the fastest pace since the “frothy” days of 2005.

Low inventory and fast-rising prices are good news for homebuilders who have recognized the need to build more homes.  More shovels were put to the ground in September, with housing starts up 1.9% on the month. Gains were concentrated in the single-family segment, while multi-family starts fell for the second consecutive month – a trend that seems to align with a tilt to less-denser suburban living as a result of the pandemic. Added supply in the new home market would help by enabling move-up buyers to acquire new homes, thereby easing the gridlock in the resale market. That said, the support from this channel will take time.

The few remaining indicators pointed to a slowing economic recovery outside housing. Initial jobless claims fell by 55k to 787k last week – better than expected, but still slightly higher than at the start of the month. Meanwhile, continuing claims from all programs eased to a still-elevated 23.2 million at the start of the month (data is delayed). Anecdotal evidence from the Beige Book also pointed to a “slight to modest” pace of growth this fall. Coupled with the fact that the virus’ spread is nearing a record high, these elements support the case for added fiscal stimulus. 

The outcome of the election, which is now a little over a week away, will have important implications for the economy (see here) and the amount of fiscal stimulus. So far, Joe Biden is leading in the polls. But, judging from what happened in 2016, it’s worth continuing to take these numbers with a grain of salt. 

Admir Kolaj, Economist | 416-944-6318

U.S: Upcoming Key Economic Releases

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U.S. Real GDP – Q3*

Release Date: October 29, 2020
Previous: -31.4%
TD Forecast: 30.0%
Consensus: 32.0%

Real GDP appears to have surged in Q3, albeit after a larger plunge previously. The rebound likely extended to consumer spending, residential investment and business investment. Net exports probably subtracted from growth, with imports up much more than exports. Our 30% q/q AR forecast for overall real GDP implies a net decline of 4.0% since Q4 of 2019, identical to the peak-to-trough decline in the severe 2008-09 recession. Meanwhile, timely data are pointing to slowing/stalling in the current quarter.

Chart: U.S.cpi

U.S. Personal Income and Spending - September*

Release Date: October 16, 2020
Previous: PCE deflator: 0.3% m/m, 1.4% y/y; core PCE deflator: 0.3% m/m, 1.6% y/y 
TD forecast: PCE deflator: 0.1% m/m, 1.5% y/y; core PCE deflator: 0.1% m/m, 1.7% y/y
Consensus: PCE deflator: 0.2% m/m, 1.5% y/y; core PCE deflator: 0.2% m/m, 1.7% y/y

Consumer spending probably finished Q3 with a solid gain, consistent with the retail sales data that have already been reported. Real spending appears to have risen at about a 39% q/q annual rate in Q3 as a whole, helped by fiscal stimulus as well recovery in the labor market. Stimulus is starting to fade, however, and it will fade a lot more in coming months unless a new fiscal package is enacted in Washington. CARES Act provisions boosted the level of personal income by 4.7 percentage points in August.

Chart: U.S. retail sales

*Forecast by Rates and FX Strategy Group. For further information, contact