A cavalcade of U.S. economic reports hit the tape in almost rapid succession Wednesday but the data deluge don’t provide any further clarity on the state of America’s fragile recovery from the pandemic, even though stocks hit record highs and a historic milestone for the Dow above 30,000 on Tuesday.
Nine economic indicators were pulled forward to Wednesday due to the Thanksgiving holiday on Thursday in the U.S., where markets will be closed, and Black Friday, where most major financial sectors will see earlier than usual closures.
As it stands, the jury is out after the parade of data.
In a bullish note to clients on Wednesday, economists at Morgan Stanley said they were raising their forecast for fourth-quarter economic growth after the data. While there may be a few months of weakness, by spring the economy should be in full swing, the analysts projected.
On the other side of the argument is Jim O’Sullivan, chief macro strategist at TD Securities, who says he’s worried about the possibility of zero growth in the fourth quarter, following by a decline in gross domestic product in the first quarter.
O’Sullivan said the most notable number was the Labor Department report that showed jobless claims have moved higher for the second straight week to a five week high. Initial jobless claims increased by a seasonally adjusted 30,000 to 778,000 in the seven days ended Nov. 21, the government said.
“I think [claims] are clearly raising the possibility that there is a turning point here…the labor market starting to weaken,” O’Sullivan said in an interview. “It does kind of highlight double-dip risk,” he added.
The Commerce Department also reported that inflation softened in October, putting the Fed farther away from its 2% inflation target. The PCE on an annual basis slipped to 1.4% last month from 1.5%.
Personal income also fell in October as some government unemployment benefits ended. More benefits expire at the end of the year. Consumer spending also moderated, rising 0.5% after a 1.2% gain in the prior month. Consumer sentiment also dipped in late November.
Orders for durable-goods rose 1.3% in October, but the vulnerable part of the economy is the service sector, O’Sullivan said.
And while new home sales remained strong in October, there are signs the sector is topping out, he said.
O’Sullivan said the clear weakness will come in the data over the next two months, he said.
Morgan Stanley was much more optimistic. The investment bank’s economists raised the tracking estimate for fourth-quarter GDP growth to a 5.6% annual rate from 4.3% previously.
Researchers at the bank cited strong durable-goods growth, continued consumer spending, and rising inventories for their upgraded outlook.
“Looking ahead, we believe a recovery in services and continued strength in housing remain key supports” for consumer spending, the Morgan Stanley crew wrote.
There would be a “difficult winter” but further increases in labor income and broad-based dissemination of a vaccine starting in the spring should help spending on services to return to its pre-COVID-19 level by mid-2021.
