- Jobless numbers climb as benefits for many near an end.
- Consumer confidence falls as jobless numbers climb.
- Consumer spending decelerates on lower personal income.
November saw a record number of new COVID-19 cases and hospitalizations. Consumer confidence is declining, and consumer spending decelerated in October before we began to see weekly increases in initial claims for unemployment in November. The 13.7 million consumers who are receiving unemployment benefits from coverage provided by the Coronavirus Aid, Relief, and Economic Security (CARES) Act will see their income support end the day after Christmas, so more risk lies ahead.
Joblessness climbs: The latest data show 6.1 million people are on traditional unemployment benefits, which are limited to at most six months of coverage. But 20.5 million Americans remain on some form of unemployment benefits including pandemic unemployment assistance, which provides coverage beyond six months. However, that additional coverage is set to expire in four weeks so there are 13.7 million consumers who will soon have no income support. Initial claims increased last week for the second week in a row to 778,000, which is very high by historical standards and moving in the wrong direction.
Economic growth falls short: The second estimate of the third-quarter real GDP increase was unchanged at 33.1% (annualized) and stands as the biggest quarterly increase in the history of the quarterly GDP data, which started after World War II. Still, the Q3 increase fell far short of the growth needed to see economic output recovered. The economy has recovered a little more than two-thirds of the year-over-year decline created in the second quarter, but the economy is left down by more than any prior recession since WWII other than the Great Recession.
Spending decelerates: Monthly growth in consumer spending decelerated in October to a modest 0.5% as spending slowed on most goods and services. Spending on new motor vehicles declined 0.2%. The deceleration in spending followed a 0.7% decline in personal income, which was driven by a 6.2% decline in government transfer payments as unemployment benefit payments declined 14%. The personal savings rate declined to 13.6%, which was the lowest savings rate since March, but the savings rate remains elevated, as it was 8.3% in February. The Personal Consumption Expenditure (PCE) Index, the key gauge of inflation that the Fed follows, was unchanged from September. Overall price inflation according to the PCE declined to 1.2% year over year in October.
Home sales dip: Both pending and new home sales, which are based on new contracts signed, declined modestly in October. The pending home sales index declined 1.1%. New home sales declined 0.3%, but the decline followed upward revisions in the sales reported for the prior three months. Both of the sales declines followed similar declines reported in September. Existing home sales and new construction both ended up in October, so these slight declines in new contracts likely point to a housing market that is losing momentum due to record prices amidst record low supply. Pending home sales are still up 20.2% so far for the year. New home sales are still up 41.5% year to date.
Consumers less confident: Consumer Confidence, according to the Conference Board, declined 5.2% in November and left confidence down 20% from a year ago and down 27.5% from February. Plans to purchase a vehicle in the next six months increased in November to the highest level since July. Plans to purchase a home also increased in November to the highest level since July. The final reading on Consumer Sentiment from the University of Michigan measured a 6% decline in November and left sentiment down 24% from February. The index of consumer sentiment from Morning Consult saw improvement in the final week of November, but sentiment declined 5.1% in November, according to that index, leaving it down 23% since Feb. 29.
Check back on Smoke on Cars for a video that will include updated data.