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Weekly Economic & Financial Commentary: Q4 GDP Data Top Expectations, but Q1-2021 Looking Shakier

U.S. Review

A Consumer and His Stimulus Check Are Soon Parted

  • Stimulus checks from the year-end COVID-relief package arrived in January, and we learned this week that retailers raked in more money during that month than they have since June. Every single store category reported increasing sales during the month. With even more stimulus on the way, we are ratcheting up our forecast for consumer spending.
  • The other big economic story this week is the winter storm that knocked out power to large swaths of the country, bringing misery and devastation to a place not accustomed to dealing with arctic cold and snow. We address what all that means for the economy in our Topic of the Week.

Global Review

Q4 GDP Data Top Expectations, but Q1-2021 Looking Shakier

  • Data on Japanese real GDP growth in Q4-2020 beat expectations. Economic growth in Japan was 3.0% quarter-over-quarter (not annualized), and the composition of growth was well-balanced.
  • The Eurozone economy contracted 0.6% quarter-over-quarter (not annualized) in the fourth quarter and declined 5.0% on a year-over-year basis. Initial data for Q1-2021 show signs that the Eurozone economy is still contracting. Preliminary Eurozone PMIs for February were released this morning and showed continued contraction in the service sector.
  • Data released this morning showed that the British consumer continued to face significant headwinds amid elevated COVID cases and government restrictions. U.K. retail sales declined 8.2% month-over-month in January, and the contraction was 8.8% when excluding gasoline sales.

U.S. Review

Upgrading Our Forecast for Consumer Spending

The 5.3% increase in the January retail sales report this week was significantly better than expected. In fact, it was better than any of the 68 economists who submitted a forecast on Bloomberg. After a particularly strong surge in goods spending in the middle part of last year, we expected retailers to limp across the finish line last year (which they did) and we expected that air pocket in goods spending would carry into the start of 2021 (which it clearly did not). We were right about the air pocket, but perhaps off on the timing. The soft patch we have been forecasting in goods spending appears to have been brought forward into the end of last year. Meanwhile, the roughly $900 billion in additional COVID-fiscal stimulus passed late last year started making its way to households in January. Most households received direct checks early in the month, while unemployment benefits were increased, and it appears households spent at least some of that extra income during January.

The January retail sales report highlights the role of fiscal policy in boosting consumer spending. Every single store type posted sales gains in January, with most retailers seeing the largest gain in sales since the summer. With yet another round of stimulus on the horizon, we are upgrading our forecast for consumer spending.

The Check Is in the Mail…Again

The trajectory of our forecast is more or less the same as it was previously, we have just front loaded more spending into the second and third quar