The Weekly Bottom Line

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

Date Published: February 26, 2021


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  • Federal Reserve Chairman Powell reassured markets that there will be no early tightening of monetary policy or drawdown of asset purchases even with a brighter economic outlook.
  • Consumers remain at the forefront of the recovery, as personal income surges and spending rebounds on the back of income support measures.
  • Jobless claims fell more than expected this week but remain three times higher than pre-pandemic levels.

The American Consumer is Back

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Chart 1: Chart one shows monthly U.S. real personal consumption expenditure on goods and services from January 2020 through January 2021 (indexed to equal 100 at the starting period). Compared to pre-pandemic levels (February 2020), spending on goods and services troughed in April, falling 15% and 20%, respectively. Goods spending has since crossed pre-pandemic levels while service spending remains well below levels seen before the pandemic. In January 2021, spending on goods and services increased by 5.8% and 0.7% (month-on-month) respectively.

For a change, the S&P 500 did not have the best week. As of writing, it was down 2.4% compared to last week’s close. Blame the Treasury yield. The 10-year Treasury yield hit the highest point in a year amid a more upbeat global economic outlook and rising concerns over inflation. The decline in equities was primarily led by large cap technology stocks, which have so far made major gains during the crisis. Still, the S&P 500 is 3% higher than where it was at the start of this year.

On the monetary policy front, the Federal Reserve’s Chairman Powell probably had the most optimistic assessment of the economy since the start of the pandemic. He told Congress that there was “hope for a return to more normal conditions”. Still, Powell signaled he is in no rush to tighten monetary policy or drawdown asset purchases even with a brighter economic outlook. The Chairman also reassured markets on the inflation front. He said that inflation dynamics do “not change on a dime” and that “the economy is a long way from our employment and inflation goals”.

In terms of economic data, personal income surged by 10% month-on-month in January, in line with market expectations. The strength was primarily due to the 52.6% increase in social benefits which include stimulus checks and expanded unemployment insurance benefits. Meanwhile, personal spending rose by 2.4% and was led primarily by goods which went up 5.8% (Chart 1). The rise in goods spending was seen across the board, with recreational goods and vehicles driving most of the gains. The services sector also showed resilience, eking out a 0.7% growth in spending. Gains were mostly led by food services and accommodation, the industry which has been in the line of fire right from the outset of this pandemic.

Chart 2: Chart two reports initial and continued unemployment claims from March 2020 to February 2021. Initial and continuing claims peaked in March and May 2020, respectively. Filings for initial jobless claims dropped by 111K in the week ending February 20th, while continued unemployment claims fell by 0.1 million for the week ending February 13th.

Turning to the labor market, jobless claims fell far more than expected (Chart 2). Initial claims came in at 730k, down 111k from the prior week, and beating the consensus of 825k. This was the largest weekly drop since the end of August. But not all states performed the same. California and Ohio registered the biggest declines while Illinois and Missouri recorded notable growth. Continuing claims came in at 4.4 million, 41k less than the consensus and down 0.1 million from the week before. Still, both claims are almost three times higher than their pre-pandemic levels. The labor market remains the weak link in an otherwise stronger-than-expected start to the new year for the economy.

Meanwhile, revisions to the second GDP release were relatively minor. The economy grew 4.1% annualized in the final quarter of last year, slightly higher than the initial estimate of 4.0%. Government and household spending were both revised down 0.1 ppts. Meanwhile, non-residential fixed investment was adjusted up 0.2 ppts, driven by stronger spending on equipment and intellectual property products. Residential investment was also revised higher by 0.1 ppts. Given the relatively minor adjustments to the quarterly data, there were no changes to the annual GDP, which shrank 3.5%.

Sohaib Shahid, Senior Economist | 416-982-2556 

U.S: Upcoming Key Economic Releases

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U.S. ISM Services Index -  February*

Release Date: Mar 1, 3
Previous: manufacturing 58.7; services 58.7
TD Forecast: manufacturing 59.5; services 58.7
Consensus: manufacturing 58.6; services 58.7

Business surveys already reported for February have generally been as strong, or stronger, than the surveys for January, consistent with high readings again for the ISM indexes; we forecast a rise in the manufacturing index and no change in the services index. Survey readings are likely being boosted by optimism about COVID and fiscal stimulus.

The chart illustrates the U.S. Institute for Supply Management's (ISM) monthly manufacturing index from January 2020 through January 2021. The manufacturing index has been on an upward trend since troughing at just 41.5 in April 2020 (values below 50 indicate a contraction in the sector). However, it dropped to 58.7 in January 2021, down 1.8% from 60.5 in December.

U.S. Employment – February*

Release Date: Mar 5
Previous: NFP 49k; UE rate 6.3%; AHE 0.2% m/m, 5.4% y/y
TD Forecast: NFP 300k; UE rate 6.3%; AHE 0.2% m/m, 5.3% y/y
Consensus: NFP 145k, UE rate 6.4%; AHE 0.2% m/m, 5.3% y/y

The employment data have been much weaker than the spending data and the survey data over the last two months, with payrolls up just 49k in January after declining by 227k in December, but the February report will probably show momentum starting to pick up again. More improvement is likely as COVID restrictions are eased further. Recovery will likely take a while; payrolls are down by 9.9mn since last February (pre-COVID). The unemployment rate is officially 6.3%, but we estimate a 9.7% rate after adjusting for a COVID-related decline in the participation rate as well as lingering classification issues.
The chart shows the monthly employment change in U.S. nonfarm payrolls from January 2019 through to January 2021, as well as the unemployment rate over the same period. Nonfarm payrolls declined sharply in April 2020 (down 20.7 million jobs) but grew solidly in the months following. Payrolls rose 49K in January, picking up from its December decline of 227k. The unemployment rate which peaked at 14.8% in April, fell by 0.4% to 6.3% in January, as the labor market slowly recovers from the pandemic shock.

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