U.S. manufacturing sectors continue to show signs of improvement with encouraging readings in the December ISM Manufacturing indexes, the January Empire State Manufacturing Survey and rail shipments. Additionally, December’s 1.6% surge in U.S. industrial production (Figure 1), and rise in capacity utilization to 74.5%, point to continued manufacturing strength in early 1Q21.
Consumers in aggregate have been incredibly resilient throughout the pandemic, and are now taking a breather. Initial jobless claims rose 181,000 to 965,000 for the week ended January 9. The claims reading is the highest since August (Figure 1) and could be in part due to passage of the recent stimulus package, The COVID Relief Bill, which includes additional unemployment assistance. The weak jobs numbers are corroborated by flagging consumer sentiment, with the University of Michigan Consumer Sentiment index falling 1.5 points in January to 79.2, as well as declining retail sales, which fell for the third straight month. Components excluding autos, gas and building materials declined by a particularly large -2.4% from -1.5%.
All of this suggests that individuals are temporarily increasing savings as certain employers struggle with recent government-imposed, virus-related restrictions that have led to a pullback in hiring and wage gains. When the direct stimulus payments are deployed and the next round of government spending is announced, this trend could change.
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