We are past the effect of the severe winter weather a week ago. As a result, COVID-19 testing is growing again, and the new daily case trend is again on the rise. Still, it remains well below the case trend in January or early February.
Consumers spend: Consumer spending increased in January as incomes jumped with the $900 billion stimulus package delivering more unemployment benefit payments as well as cash payments.
Spending on durable goods increased 8.4% in January, while spending on nondurable goods increased 4.3%, and spending on services increased 0.7%. Spending on new motor vehicles increased 5%.
The jump in personal income was driven by an 85% increase in unemployment benefit payments and a 257% increase in other transfer payments. The government transfer increases were provided by the $900 billion stimulus package signed into law late in December, which delivered $600 payments to many Americans and provided $300 per week in additional unemployment benefits as well as extended pandemic assistance benefits that had expired in December. The personal savings rate increased to 20.5%, which was the highest savings rate since May.
Housing mixed: The housing market was mixed in January. Pending home sales declined, but new home sales increased. Home sales remain up substantially from a year ago, but the housing market faces several headwinds now, including historically low supply, record prices, and mortgage rates that are moving higher from all-time lows in 2020. However, home sales continue to be up substantially from the prior year.
Consumer confidence mixed: Consumer sentiment measures were mixed in February, but the most timely and comprehensive measure indicates strong gains with sentiment higher than it has been since March 20, 2020.
Consumer Confidence, according to the Conference Board, increased 2.7% in February and left confidence down 31% year over year. Plans to purchase a vehicle in the next six months declined in February from January and was down from a year ago. Plans to purchase a home also declined in February and was also down from a year ago.
The final reading on Consumer Sentiment from the University of Michigan declined 2.8% in February and left sentiment down 24% from last February. The Michigan survey data did reflect a modest improvement from the original estimate earlier in February, but it did not capture all of the gains that the index of consumer sentiment from Morning Consult has observed in recent days. The Michigan Survey data reflected surveys taken through February 22. The Morning Consult Index has measured 1.7% in gains since February 22. As of last Friday, the index showed a 4.2% gain for February. The Morning Consult Index remains down 17.7% since February 29 but is at the highest level since March 20.
Jobless claims drop – maybe: New initial jobless claims declined in the latest data, but those numbers were from the week impacted by the winter weather. Initial claims and continuing claims both fell in the last week of reported data, but the severe winter weather last week likely pulled down initial claims.
The latest data show 4.4 million on traditional unemployment benefits, which are limited to at most six months of coverage, but 19 million remain on some form of unemployment benefits, including pandemic unemployment assistance, which provides coverage beyond 6 months.
With the passage of the stimulus bill in December, the pandemic assistance is set to continue through mid-March. The next stimulus package will extend those benefits further. There are 12.6 million consumers receiving it. Initial claims declined last week to 730,000, which is a level below the weekly average in September and October, but that much of a decline may be short-lived once we see the weather effect dissipate.
Check back on Smoke on Cars for a video that will include updated data.