RCF Weekly Economic Update

February 22, 2021

Our guide to notable economic data, forecasts, and analyses. For more information contact Peter Bernstein at pbernstein@rcfecon.com. Additional updates and releases can be found at www.rcfecon.com/research/news-and-press-releases/

  • Census Bureau, Advance Monthly Sales for Retail and Food Services, January 2021
  • Federal Reserve, Industrial Production and Capacity Utilization, January 2021
  • University of Michigan, Consumer Sentiment, February 2021 (preliminary)
  • National Association of Home Builders/Wells Fargo, Housing Market Index, February 2021
  • Summary of Economic Surveys
  • Digital Commerce 360, Retailers hold onto stores in hopes of surge of shoppers
  • Chart of the Week – Real GDP Growth Ranges

Data Releases 

U.S. Retail Sales Beat Estimates, January 2021

Bloomberg: U.S. retail sales surged in January by the most in seven months, beating all estimates and suggesting fresh stimulus checks helped spur a rebound in household demand following a weak fourth quarter. The value of overall sales increased 5.3% from the prior month after a 1% decline in December, Commerce Department figures showed Wednesday. It was the first monthly gain since September and all major categories showed sharp advances.  Ahead of the report, the median estimate in a Bloomberg survey of economists called for a 1.1% monthly gain in retail sales.  https://www.bloomberg.com/news/articles/2021-02-17/u-s-retail-sales-surged-5-3-in-january-most-in-seven-months?sref=d26H4urJ ; https://www.census.gov/retail/marts/www/marts_current.pdf

Federal Reserve, Industrial Production and Capacity Utilization, January 2021

Industrial production increased 0.9 percent in January. Manufacturing output rose 1.0 percent, about the same as its average gain over the previous five months. Mining production advanced 2.3 percent, while the output of utilities declined 1.2 percent. At 107.2 percent of its 2012 average, total industrial production in January was 1.8 percent lower than its year-earlier level. Capacity utilization for the industrial sector increased 0.7 percentage point in January to 75.6 percent, a rate that is 4.0 percent below its long-run (1972–2020) average.  https://www.federalreserve.gov/releases/g17/current/

University of Michigan, Consumer Sentiment, February 2021 (preliminary)

Consumers’ view of the economy slipped in early February as Americans were more downbeat about future business conditions, according to a University of Michigan survey released Friday. The preliminary estimate of the index of consumer sentiment came in at 76.2 in February, down from 79.0 in January. The decline in sentiment was concentrated in the measure of future expectations and among households with incomes below $75,000, said Richard Curtin, the survey’s chief economist. “Households with incomes in the bottom third reported significant setbacks in their current finances, with fewer of these households mentioning recent income gains than anytime since 2014,” Mr. Curtin said. A new round of stimulus payments would presumably reduce financial hardships among those with the lowest incomes, he said. The sentiment measure was the lowest since August, and down from the 101.0 in February 2020, just before the coronavirus pandemic took hold in the U.S. https://www.wsj.com/articles/u-s-consumer-sentiment-falls-in-early-february-11613146905

National Association of Home Builders/Wells Fargo, Housing Market Index, February 2021

Strong buyer demand helped offset supply chain challenges and a surge in lumber prices as builder confidence in the market for newly built single-family homes inched up one point to 84 in February, according to the latest NAHB/Wells Fargo Housing Market Index (HMI). “Demand conditions remain solid due to demographics, low mortgage rates and the suburban shift to lower cost markets, but we expect to see some cooling in growth rates for residential construction in 2021 due to cost factors, supply chain issues and regulatory risks,” said NAHB Chief Economist Robert Dietz. “Some builders are at capacity and may not be able to expand production due to these headwinds.” https://www.nahb.org/news-and-economics/housing-economics/indices/Housing-Market-Index

Economic Forecasts and Analyses

Surveys of Economic Forecasts:

  • Federal Reserve Bank of Philadelphia, Survey of Professional Forecasters, First Quarter 2021
  • Wall Street Journal, Economic Forecasting Survey, February 2021
  • Bloomberg News, Economists’ Survey, February 2021

Federal Reserve Bank of Philadelphia: The outlook for the U.S. economy over the next three years looks stronger now than it did three months ago, according to 39 forecasters surveyed by the Federal Reserve Bank of Philadelphia. The panel predicts real GDP will grow at an annual rate of 3.2 percent this quarter, unchanged from the prediction in the last survey. However, over the remaining quarters in 2021 and the following two years, the panelists see a stronger rebound in output growth than they predicted previously. On an annual-average over annual-average basis, the forecasters expect real GDP to grow at an annual rate of 4.5 percent in 2021 and 3.7 percent in 2022. The projections for 2021 and 2022 are up from 4.0 percent and 3.0 percent, respectively, in the last survey. https://www.philadelphiafed.org/-/media/frbp/assets/surveys-and-data/survey-of-professional-forecasters/2021/spfq121.pdf

Wall Street Journal: Forecasters are increasingly optimistic about economic growth this year, though less so about the labor market’s prospects, as it recovers from the effects of the coronavirus pandemic, a new Wall Street Journal survey shows. Economists on average expected gross domestic product to expand nearly 4.9% this year, measured from the fourth quarter of the prior year, according to the business and academic economists surveyed in February, an improvement from their 4.3% forecast in January. They cited the distribution of Covid-19 vaccinations and the prospect of additional fiscal relief from Washington for the brightening outlook. However, they were more cautious about the recovery in jobs. Economists this month on average expected employers to add 4.8 million jobs this year, down from the 5.0 million they projected in January and equal to just half of the 9.6 million jobs lost since February 2020. The forecasters saw a mean unemployment rate of 5.3% by year’s end, about the same level they projected in last month’s survey. The Labor Department said Friday the national jobless rate was 6.3% in January.” https://www.wsj.com/articles/economic-survey-11613000382https://www.wsj.com/graphics/econsurvey/

Bloomberg News: With Covid-19 cases stabilizing and Democrats oiling the tracks to pass large parts of President Joe Biden’s $1.9 trillion stimulus plan — even without Republican support — economists are raising their 2021 economic growth forecasts. Expectations for gross domestic product growth increased for the current three-month period and every subsequent quarter through mid-2022 in the latest survey of economists by Bloomberg News. Economic growth this year is estimated to be the strongest since 1984. GDP is projected to rise an annualized 5.6% in the second quarter and 6.2% in the third — both 1.6 percentage points stronger than January estimates, according to the median forecasts in a Feb. 5-10 survey of 76 economists. https://www.bloomberg.com/news/articles/2021-02-12/larger-stimulus-leads-to-big-upgrade-to-u-s-growth-forecasts?sref=d26H4urJ

Digital Commerce 360, Retailers hold onto stores in hopes of surge of shoppers

A surge of expected store closings early this year hasn’t materialized after strong holiday sales prompted retailers to hold on to their leases in hopes of a shopping rebound. Last year, retailers announced plans to shutter a record 12,200 stores, according to CoStar Group. But some are now reconsidering after larger holiday revenues and ready support from lenders gave them more breathing room, Mulcunry said. Holiday sales jumped 8.3% in November and December compared with a year earlier, according to the National Retail Federation, easily beating an expected gain of 3.6% to 5.2%.

Online holiday sales still came out as the winner, reaching $201.32 billion, up an impressive 45.2% from $138.65 billion in 2019, Digital Commerce 360 estimates. Many consumers greatly shifted their behavior, including more online shopping, due to the coronavirus pandemic.

COVID-19-related shifts in buying behavior translated into an additional $41.54 billion in digital revenue for November-December, according to Digital Commerce 360. If online holiday sales had accelerated at a more typical seasonal growth rate—a median 15.2% over the prior five years—revenue wouldn’t have reached 2020-estimated levels until 2022. A normal, pandemic-free holiday in 2020 likely would have resulted in consumers spending about $159.78 billion on the web.”

Chart of the Week – Real GDP Growth Ranges

Via Federal Reserve Bank of Philadelphia, Survey of Professional Forecasters, First Quarter 2021

The charts below provide some insight into the degree of uncertainty the forecasters have about their projections for the rate of growth in the annual-average level of real GDP. Each chart presents the forecasters’ previous and current estimates of the probability that growth will fall into each of 11 ranges. The charts show the forecasters have revised upward their estimates of the probability that real GDP will grow 4.0 percent or more in 2021 and 2022.