MARKET VIEW WEEKLY

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ECONOMIC REVIEW

• Housing starts came in at 1.643 million starts, beating economists’ forecasts of 1.572 million

• Building permits came in at -5.1%, significantly missing economists’ forecasts of +0.7%

• Existing home sales came in at 5.86 million units, also missing economists’ forecasts of 5.90 million

• Initial Jobless claims came in higher than expected posting a reading of 419,000 versus economists’ forecast of 350,000 and a jump from last week’s reading of 360,000

INSIGHT: Economic data for this week came in weaker than economists’ estimates. Initial jobless claims surged higher by 59,000 compared to the prior week’s reading, reversing the downward trend in claims reported for the prior few weeks. Digging into the headline initial claims number, the rise in claims can be attributed primarily to four states, Michigan, Missouri, Kentucky, and Texas, where supply chain shortages affecting industries such as auto manufacturers continue to be a headwind for their economies. Furthermore, the data coming in for this week continues to point to a slowdown in the housing market, with both building permits and existing home sales coming in below forecasts. However, more recently, commodity prices have come off their highs which has boded well for certain areas of the market such as housing starts. Ultimately, concerns surrounding the delta variant have caused a resurgence of skepticism by consumers and businesses regarding the economic recovery. However, we hope that delta variant fears are overheated and do believe that supply chain bottlenecks should subside.

A LOOK FORWARD1

• New Home Sales will be released on Monday with economists’ expectations of 800,000, an increase from the prior month’s reading of 769,000

• GDP quarter-over-quarter readings will be released on Thursday, and consensus estimates have GDP growth at an annualized rate of +8.6%

• Consumer Confidence Index will come out on Tuesday, with an expected reading of 124.3

INSIGHT: The previous few quarters have been tumultuous for consumers, however with vaccinations rolling out and restrictions easing there is much optimism surrounding the growth of the economy. Gross Domestic Product (GDP) is one of the most prevalent data points pertaining to how well an economy is growing. Before the pandemic, GDP was increasing each quarter at a rate of 2%. This previous norm points to the amazing strides the economy has made since the pandemic, as the newest estimation for second quarter GDP is over 8%. Next, although Consumer Confidence is expected to decrease for the month of June the number is just below prepandemic levels of early 2020, and 2019. The peak in 2019 was 132, before falling to 86 at the height of the pandemic. These prints continue to support the strength of the economic recovery

Melissa MinterAugust 5, 2021

Overview

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The year began with the government stymied by a shutdown, and ended with articles of impeachment levied against the president. In between, both domestic and global economies showed signs of slowing, all while the trade war between the United States and China loomed throughout the year. Nevertheless, investors remained relatively bullish toward stocks, pushing several major indexes to record highs.

While domestic economic growth may have slowed in 2019 compared to 2018, it showed resilience and stamina. The third-quarter gross domestic product expanded at an annualized rate of 2.1% — moderately down from 2018's 3.0% rate, yet still strong enough to outpace global economic growth by a considerable margin. Consumer spending — which accounts for about two-thirds of the U.S. economy — surged, buoyed by a strong labor market, near-record unemployment, solid wage growth, and a burgeoning stock market. All told, the domestic economic expansion continued into its 11th straight year, the longest run in U.S. history.

Last year saw trade disputes between the United States and several of its trade partners reach an accord, but the trade war with China roared. The world's two largest economies engaged in a tit-for-tat skirmish, with each country volleying tariffs on their respective imports at the expense of the exporting nation. Coincidentally, a limited deal was announced just before the holiday shopping season, with the U.S. agreeing to forgo new tariffs and China assenting to allow more U.S. agricultural imports. Further negotiations are presumed, but the relationship between the economic giants remains tenuous at best.

Not only did the ongoing trade war affect global economies, but it also impacted domestic business investment, industrial production, and exports. Part of the justification cited by the Federal Reserve for lowering interest rates three times last year was weakness in business fixed investment and exports. As of November, new orders for durable goods were down 1.3% from the same period in 2018, and business (nonresidential) investment fell 2.3% in the third quarter.

The new year begins with a strong stock market and solid economic growth. The Secure Act, passed in late December, should change the retirement planning (and saving) landscape to some extent. However, the Treasury budget deficit for fiscal 2019 (October 2018-September 2019) exceeded $980 billion — 26% higher than the 2018 fiscal-year deficit. The trade war with China may cool with more mutual concessions, or accelerate, which would continue to dampen global economic growth. The new year will begin with the impeachment process and end with November's presidential election. What happens in between is anyone's guess. Will unemployment and inflation remain low? Will stocks continue to experience growth? Will oil and gas prices moderate or surge? Will the domestic economy continue to accelerate, or suffer a setback? Can the world economy recover, or will it continue to stagnate? If nothing else, 2020 looks to be an interesting year.

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MARKET VIEW WEEKLY

Overview

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