- Jobless claims fall substantially; more declines expected.
- Consumer sentiment is improving in fits and starts.
- Spending, housing sales hit by severe weather.
The trend in new daily COVID-19 cases is on the rise again as new variants are spreading rapidly in many areas. Economic activity is also increasing, which is likely contributing to the virus spread but is also helping to improve employment conditions.
The severe winter storms in February caused home sales and personal spending to decline. Income declined relative to January as February had no stimulus cash payments. March spending and income data will show large gains.
Jobs claims fall: Initial claims and continuing claims both fell substantially in the last week of reported data. As of March 13, 3.87 million Americans remain on traditional unemployment benefits, which are limited to at most six months of coverage. About 19 million people remain on some form of unemployment benefits, including pandemic unemployment assistance, which provides coverage beyond six months. With the American Rescue Plan, pandemic assistance will continue through September, and 8.3 million consumers are receiving it.
Initial claims declined last week to 684,000, which is the lowest weekly level for the pandemic but still higher than the single worst week in the Great Recession, which recorded 665,000 initial claims. We will likely fall below that level in the next few weeks.
Consumer sentiment improving: Consumer sentiment improved in March but likely lost some ground last week. The final reading on Consumer Sentiment from the University of Michigan increased 10.5% in March and left sentiment down 16% from February 2020. Both current conditions and future expectations improved, and the gain in future expectations was the strongest monthly increase since April 2009. The Michigan survey data also reflected improvement from the original estimate earlier in March.
The index of consumer sentiment from Morning Consult had been rising over the past seven weeks, but that index lost some ground last week. The Morning Consult Index was down 0.8% week to week as of last Friday, but it is still up 5.4% for March and is down 13.1% since February 29, 2020.
Consumer spending slips: Consumer spending slipped 1% in from January to February as personal income fell 7% and winter weather disrupted activity in much of the country. Spending on durable goods declined 4.7% in February, while spending on nondurable goods declined 2%, and spending on services increased 0.1%. Spending on new motor vehicles declined 5%.
The decline in personal income was caused by a 3% decline in unemployment benefit payments and a 67% decrease in other transfer payments. The government transfer decreases reflected the effect of the $900 billion stimulus package signed into law in late December, which delivered $600 payments to many Americans in January.
When we get March and April data, we will see huge increases from the American Rescue Plan’s $1,400 payments.
The personal savings rate declined to 13.6% from January but remains up from a year ago. Price inflation increased. Inflation remains low in aggregate, but more categories like vehicles, appliances, food, health care, and utilities are seeing higher inflation.
Weather hits home sales: Home sales were significantly impacted by the severe weather in February, but historic low inventories, record prices, and mortgage rates moving higher may also be contributing to slowing demand.
The existing home sales SAAR declined 6.6% in February to 6.22 million, which was the slowest pace since August. At this rate of sales, existing home sales were up 9.1% from a year ago. Inventory was unchanged in February at 1.03 million units, which remains a record low and was down 29.5% from a year ago.
The National Association of Realtors also reported that 74% of the homes sold in February were on the market for less than a month. The months’ supply of homes for sale increased slightly to 2.0 months and is a third of what is considered normal. The median sales price represented a 15.8% year-over-year gain. Home sales improved in the South and the West but were down in the Northeast and the Midwest. New home sales, which are based on new contracts signed, declined 18.2% in February and were down in every region. With the decline, new home sales were up 8.2% from a year ago.
Economic growth rises: The third and final report of Q4 2020 showed that real GDP increased 4.3% (annualized), which was an upgrade from 4.1% in the second estimate. Personal consumption was revised down to 2.3%, which was down from 41% growth in the prior quarter. Spending on goods was revised down to see an even larger decline of 1.4% while spending on services was upgraded to an increase of 4.3%. Gross private investment was revised up to an increase of 27.8%. The decline in government spending was revised to a less severe decline of 0.8%. With the revisions, real GDP remained down 2.4% in the fourth quarter from a year ago.