The Weekly Bottom Line

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

Date Published: August 7, 2020


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  • Despite a surge in COVID-19 cases in July, economic data remained broadly positive. Vehicles sales rose 11.3% to a better-than-expected 14.5 million (SAAR). The ISM indices also ticked up on the month and beat expectations.
  • Importantly, the employment report confirmed that the jobs recovery continued in July, albeit at a slower pace. The U.S. added a better-than-expected 1.8 million jobs, while the unemployment rate fell to 10.2% from 11.1% in June.
  • A downward trend in new infections in very recent days marks another positive development. Hopes are also high for a new stimulus package. But, it is unclear if an agreement regarding the stimulus can be achieved in short order.

Jobs Recovery Continued in July, Albeit at Slower Pace

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Chart 1: business barometer rebounds but its no

After last week’s dismal (though expected) GDP print, this week’s data had a comparatively more positive feel to it. The data indicate that the recovery was still chugging along at the start of the third quarter, although momentum has slowed. 

Auto sales continued to improve for the third consecutive month in July, rising by 11.3% to a better-than-expected 14.5 million (SAAR) units. In similar fashion, the ISM indices made gains on the month and came in better than expected. The manufacturing index rose 1.6 points to 54.2 in July, with broad-based gains across subcomponents. Its non-manufacturing counterpart did not exhibit the same breadth of gains, but the headline still ticked up one point to 58.1, thanks to a sizable pickup in new orders. While the ISM indices are signaling an expansion at the fastest pace since early 2019, it is important to recall that both sectors are coming out of a very low activity period. 

When it comes to gauging the overall health of the labor market, the monthly employment report takes the cake. The July report showed that the recovery in jobs continued last month, albeit at a slower pace (Chart 1). The economy added 1.8 million jobs, beating market expectations. Gains were concentrated in leisure & hospitality, government and retail trade. This brought the three-month tally to 9.3 million, which means that a little over 40% of the jobs lost in the March-April period have been recovered. 

The unemployment rate, meanwhile, improved further in July, falling to 10.2% from 11.1% in June, as the number of unemployed persons fell by 1.4 million. The theme of more Americans being called back to work remained evident in July as the number of people on temporary layoff fell 1.3 million to 9.2 million, while the number of those on permanent layoff was virtually unchanged at 2.9 million.

Chart 2: business barometer rebounds but its no

With new COVID-19 infections surging last month, several states hit the pause button on reopening – a major factor behind slowing momentum. With the spread of the virus still elevated, near-term risks appear tilted to the downside. The recent expiration of the $600-per-week enhanced unemployment benefits, which helped buoy retail spending in recent months, is another potential thorn on the side of the recovery.

Despite everything, there are indications that this latest health-induced hurdle too shall pass in time. For instance, over the last several days, infections appear to be slowing again on a trend basis (Chart 2). If sustained, this downward trajectory will eventually help grease the wheels of the reopening process.

At the same time, a new stimulus package that’s being negotiated in Washington is expected to lend another hand to the recovery. Hopes are high for stimulus on several fronts (enhanced unemployment benefits, stimulus checks, aid to small business and state and local governments, along with rent, mortgage and food assistance). But, given large outstanding differences in Congress, it is unclear if an agreement can be achieved in short order. Timing is of the essence to avoid further financial stress and to support the confidence channel.

Admir Kolaj, Economist | 416-944-6318

U.S: Upcoming Key Economic Releases

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U.S. Consumer Price Index– July*

Release Date: August 12, 2020
Previous: 0.6% m/m, 0.6% y/y
TD Forecast: 0.4% m/m, 0.8% y/y
Consensus: 0.3% m/m, 0.7% y/y

The CPI likely rose strongly, and not just due to gasoline. We forecast a 0.3% m/m rise in core prices, above the 0.1% averaged over the past year. As in June, when core prices rose 0.235%, we expect unwinding of some of the March-May plunge in travel-related prices (such as airfares and hotel rates) to outweigh slowing in rents. That said, the slowing in rents is probably more indicative of the trend in the year ahead. We expect the 12-month change in core prices to remain low at 1.2% in the July report. That is down from 2.4% in February (pre-COVID). The 12-month change in the overall index probably rose to a still-low 0.8% from 0.6% in June; it was 2.3% in February.

Chart: U.S. ism non manufacturing

U.S. Retail Sales– July*

Release Date: August 14, 2020
Previous: 7.5% m/m, ex-auto: 7.3%
TD Forecast: 2.2% m/m, ex-auto: 1.5%
Consensus: 1.8% m/m, ex-auto: 1.3%

Retail sales likely slowed in July after huge gains in May and June, but they were probably still up solidly, even with the second COVID wave. A sizable gain in autos has been signaled by the units data, while gasoline spending was probably boosted by higher volumes as well as prices. We expect more slowing in the data for bars and restaurants and the control series.  The level of spending will likely be up sharply from the Q2 average, helping put real GDP on track for a fairly strong gain in Q3 after the huge plunge in Q2.

Chart: U.S. ism manufacturing

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