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Weekly Economic and Financial Commentary: COVID Is Still Holding Sway Over the Economy

U.S. Review

Data Continue to Reflect the Economy’s Resilience

  • Manufacturing held up relatively well in November, despite a larger-than-expected dip in the ISM manufacturing survey. The nonfarm manufacturing survey rose slightly.
  • Residential construction continues to ramp up, while the commercial construction pipeline appears to be winding down.
  • Nonfarm employment rose by smaller-than-expected 245,000 in November, but there were many crosscurrents in the data.
  • COVID infections appear to have topped out slightly before Thanksgiving but hospitalizations are still rising. Another spike in infections is widely expected in the coming weeks.

COVID Is Still Holding Sway Over the Economy

The latest spike in COVID infections is clearly evident in the latest round of economic reports. Consumers began to pull back from high-contact activities in late October and early November, negatively affecting restaurants, bars, entertainment venues and in-person shopping. Restaurant closings have also picked up, although we expect the fallout to become more apparent in the December and January data, when we believe the latest wave of COVID infections is likely to most heavily influence the economy.

This past week’s data show the economy is maintaining a great deal of resilience. The ISM Manufacturing Index fell 1.8 points to a still strong 57.5 in November. The ISM is a diffusion index and measures the breadth of strength or weakness in the factory sector rather than the magnitude. Any reading above 50 means more manufacturers see conditions at their business improving rather than weakening. The forward-looking indicators of the survey suggest that manufacturing activity should hold up well, even if the economy loses a bit of momentum over the next couple of months. While the new orders series fell slightly in November, it remains high at 65.1 and the backlog of unfilled orders continues to trend higher. Export orders are also improving and inventories of just about everything are low.

Most of the recent housing data show builders and realtors struggling to match supply with exceptionally strong demand. Home sales and single-family construction normally slow during the winter but are widely expected to slow less this year due to the shift in home buying in parts of the South and West where winter weather does not inhibit new construction. Mild fall weather also allowed for more construction than usual, leading to some strength in November construction payrolls. That said, pending home sales fell 1.1% in October, following a 2.0% drop the prior month. Part of that drop likely reflects incredibly thin for-sale inventories. Mortgage applications have also moderated on a sequential basis, hinting that the run-up in home sales and housing starts may be in for a pause.

Nonfarm employment rose by a smaller-than-expected 245,000 jobs in November. The winding down of temporary Census jobs again weighed on the headline increase, as government payrolls fell by 99,000 jobs. Employment in bluecollar professions continues to rebound. Manufacturing and construction each added 27,000 jobs in November. Employment in trucking and warehousing jumped by a whopping 145,000 jobs, much of which were at couriers and delivery firms. Of course part of that strength comes at the expense of brick and mortar retailers, which hired fewer workers for the holiday season. Mall-based retailers appear to be struggling the most, while discount stores, home improvement centers and other big-box chains continue to do well.

While the latest data show continued sequential grow