- Economy grows in Q4 but 2020 is worst year since 1948.
- Consumer confidence rises; car-buying plans gain.
- Jobless claims decline but remain high.
The downward trend in new daily COVID-19 cases continues, but new variants are raising concerns. The economy grew in the fourth quarter. Consumer spending slowed, savings grew, and consumer confidence improved.
Economy grows: The first estimate of fourth quarter 2020 real GDP growth came in at 4.0% (annualized), less than the 4.2% expected. Based on the initial estimate for the quarter, GDP declined 3.5% for the full year of 2020, the worst annual performance since 1948. The fourth-quarter increase followed a 33.4% increase in the third quarter, which was the largest quarterly increase in the history of the quarterly GDP data.
Consumer confidence rises: Consumer sentiment has increased substantially over the last 10 days and has more than recovered the ground lost in December and the first half of January. According to the Conference Board, consumer confidence increased 2.5% in January, leaving confidence down 32% year over year and down 33% from February 2019.
The final reading on Consumer Sentiment from the University of Michigan declined 2.1% in January and left sentiment down 22% from last February. The Michigan survey data did not seem to capture the gains observed by Morning Consult since Jan. 19. That index saw strong recovery over the last 10 days. At the end of last week, the index showed a 3.7% gain over December, but the index remains down 20.5% since February 29.
Car-buying intentions improve: Plans to purchase a vehicle in the next six months increased in January from December, according to Consumer Sentiment studies, but was down year over year. Plans to purchase a home also increased in January and was up from the previous year.
Jobless claims fall, but remain high: New jobless claims declined again in the latest week of data but remain at high levels. Initial claims and continuing claims both fell in the last two weeks of reported data. Initial claims declined last week to 847,000, but that level remains much higher than we saw throughout the fall. The latest data show 4.8 million people on traditional unemployment benefits, which are limited to at most six months of coverage, but 18.3 million Americans remain on some form of unemployment benefits, including pandemic unemployment assistance, which provides coverage beyond six months. With the passage of the stimulus bill in December, the pandemic assistance is set to continue through mid-March, and 11.2 million consumers are receiving it.
Home sales mixed: Pending home sales, based on contracts signed, slowed slightly in December, but new home sales improved slightly. For 2020 in total, home sales were up substantially compared to the prior year. They weakened in the fall due to more issues around COVID-19 and severe supply constraints but saw some partial improvement at year end. Low inventory led to record prices.
Consumer spending dips: Consumer spending declined 0.2% in December as personal income increased 0.6%. Spending on durable goods increased 9.6% in December, while spending on nondurable goods increased 3.4% and spending on services declined 7.2%. Spending on new motor vehicles declined 11.3%.
The increase in personal income tracked gains in wages and benefits but was also boosted by stronger gains in dividend income and a 14.3% jump in unemployment benefit payments and a 5.6% increase in other transfer payments. The government transfer increases were related to the $900 billion stimulus package signed into law in late December.
Savings rise: The personal savings rate increased to 13.7%, the highest savings rate since September. The savings rate continues to be elevated because of the pandemic, as the savings rate was up 6.5 percentage points year over year in December. The Personal Consumption Expenditure Index, the key gauge of inflation that the Fed follows, increased 0.4% from November. Overall price inflation but remains low in aggregate though more underlying components are starting to see increases.
Check back on Smoke on Cars for a video that will include updated data.