- Jobless claims soar.
- Used-vehicle sales down, prices up.
- Residential construction remains strongest part of economy.
Last week, we saw continued growth in COVID-19 cases but at a slowing pace. Record cases and new restrictions are causing a continued uptick in new jobless claims.
Consumer sentiment improved modestly last week, building upon improvement that came as vaccine news seems to be helping lift consumer spirits.
Retail sales declined in November with the rise in cases and the decline in sentiment we saw in November. New construction grew again in November, as housing continues to be the strongest part of the economy.
Initial jobless claims increased last week to 885,000, which is the highest level of initial claims in almost four months.
The latest data show 5.5 million on traditional unemployment benefits, which are limited to at most six months of coverage, but 20.6 million remain on some form of unemployment benefits, including pandemic unemployment assistance, which provides coverage beyond six months.
That additional coverage is set to expire on December 26, putting 14 million consumers at risk of soon having no income support unless Congress passes the $900 billion COVID-19 stimulus package finalized over the weekend. The package includes: a $600 direct payment to Americans meeting certain income levels; a $300 boost to the federal unemployment insurance benefits; and an extension of eviction moratoriums for renters.
Retail sales fall: Retail sales fell 1.1% in November, and the decline in spending was worse than the consensus expectation of -0.3%. Auto sales declined more than spending on other goods as sales, excluding motor vehicles and parts, declined 0.9%, while motor vehicles and parts were down 1.7%.
The only major category gainers were grocery stores, building materials and non-store retailers. The biggest monthly decliners were department stores, clothing stores and food service and drinking places. With the decline in November, retail sales are up 4.1% year over year. Categories with the largest year-over-year declines as of November were gas stations, restaurants, clothing stores and department stores.
Fed keeps rates low: The Federal Reserve held their final rate policy meeting for the year and affirmed they will continue to keep rates low but otherwise did not change much. The only change in the official statement was more specific details about their program of buying Treasury bonds and mortgage-backed securities.
Longer-term Treasury yields have been moving higher this fall, and presumably some of the Fed’s future attention may be placed on buying longer dated bonds to keep longer-term yields from moving even higher. This is critical, as consumer loans, like auto loans and mortgages, are more directly related to these longer-term yields rather than short term rate policy.
Used-vehicle sales down, prices up: Retail used-vehicle sales lost momentum this fall as record prices slowed the stronger demand we had been seeing in the summer and as the third wave of COVID-19 grew.
Wholesale used-vehicle prices increased modestly in the first half of December as a result of increasing numbers of younger and more expensive vehicles being sold. In addition, more pickups and SUVs were being sold in December. The seasonally adjusted Manheim Index increased 0.4% comparing the first 15 days of December to the month of November. The non-seasonally adjusted monthly change was also positive at +0.3%.
Home construction shines: Residential construction activity increased in November as starts and permits both grew and reached new multiyear highs.
The seasonally adjusted annualized rate of housing starts increased 1.2% while permits increased 6.2%. Starts are now up 12.8% from last November. Permits are up 8.5% year over year. Permits lead starts, and the permitting pace at 1.639 million units still exceeds the 1.547 million starts pace. This implies that starts will likely increase further as conditions allow.
Underneath the totals, there is still quite a split in the composition of new construction. Single family permits are up 22% from a year ago, while multi-family permits are down 14%. However, multifamily permits did rise in November from October.
Low mortgage rates and increased demand for single family homes and second homes have been helping new single-family construction grow since April. Multifamily has been dealing with rent forbearance and weakened demand for apartments as lower wage workers have been hardest hit in the pandemic and as more people prefer to move out of denser urban areas.
Consumer confidence gains: The index of consumer sentiment from Morning Consult gained more ground last week. The daily index as of Friday, Dec. 18, is up 0.3% from a week ago. Sentiment has been modestly improving over the last two weeks as the Pfizer/BioNTech vaccine began its rollout. Sentiment is now down by 23% compared to the end of February and down 5.2% from the end of October.
This is the final weekly update for the year. Weekly updates will resume on Monday, Jan. 4, 2021. Check back on Smoke on Cars for the year-end video that will include updated data.