Weekly Economic Reports: Week ending Dec. 11, 2020

Market close as of 4 pm EST Dec 11

Small business optimism slipped more than expected in November

The National Federation of Independent Business (NFIB) Small Business Optimism Index for November fell to 101.4 from October's 104.0 level, compared to the Bloomberg estimate of a decrease to 102.5. Four of the ten index components improved during the month, while six declined. However, the index remained well above the 47-year historical average reading of 98. The NFIB noted that small business owners are still facing major uncertainties, including the COVID-19 crisis and the upcoming Georgia runoff election, which is shaping how they're viewing future business conditions. The report added that the, "Recovery will remain uneven as long as we see state and local mandates that target business conditions and disproportionately affect small businesses."

Nonfarm productivity revised slightly lower

Final Q3 nonfarm productivity was revised lower to a 4.6% gain on an annualized quarter-over-quarter (q/q) basis, from the preliminary estimate of a 4.9% rise, where it was expected to remain. Q2 productivity was unrevised at a 10.6% increase. Labor productivity, or output per hour, is calculated by dividing real output by hours worked by all persons, including employees, proprietors, and unpaid family workers, and is a major contributor to the economy's long-term health and prosperity. Unit labor costs were adjusted to a 6.6% q/q decline, from the preliminary drop of 8.9%, versus forecasts of an unrevised fall. Unit labor costs were revised higher to an increase of 12.3% in Q2.

Manpower employment outlook up 

The Manpower Employment Outlook Survey for Q1 2021 improved by three points to 17, as hiring intentions continued to recover. The index came within four points of its pre-recession high, which was reached in Q3 2019. All 12 Manpower industry sectors expect payroll gains in early 2021. But the improvement in the overall index was led by durable goods manufacturing, financial activities, and government. The employment outlook was stable to slightly stronger across all four geographic regions.

OECD U.S. CLI shows below-trend growth 

The OECD U.S. Composite Leading Indicator (CLI) increased 0.2 points in November, its seventh consecutive gain, to 98.9, as the economy continued to claw its way back from the recession. But the index has yet to recover to its February level and remains well below 100, reflecting a below-average pace of growth. The latest increase was about even with the gains in the prior two months, but a fraction of the gains in late spring and summer, as the recovery has moderated. Today’s FDA approval of a COVID vaccine should give impetus to the economic recovery in 2021. 

Job openings up, but labor market slack still high 

Job openings rose 2.4% in October to 6.652 million, led by gains in health care and social assistance and state and local government education. But the level is still 360,000 below what it was at the start of the year, as labor demand has yet to fully recover from the pandemic slump. The number of unemployed per job opening edged down to 1.7 from 1.9, which is about double its pre-recession level, indicating a lot of labor market slack. 

Hires slipped 1.3% to 5.812 million, also slightly below their level at the start of this year. Total separations climbed 5.4% to 5.107 million, a six-month high, led by a notable pickup in layoffs. The quit rate was unchanged at 2.2%, but lower than pre-pandemic, implying reduced worker confidence.

Wholesale inventories rise 

Wholesale inventories jumped 1.1% in October, its third consecutive gain, and the most since January 2019. It exceeded the consensus of +0.9%. The increase was led by nondurable goods (mostly farm products and drugs). Wholesale sales rose a larger 1.8%. As a result, the wholesale I/S ratio edged down to 1.31 from 1.32, basically in line with its pre-recession level. 

Mortgage applications still strong 

The MBA Purchase Index fell 5.0% last week, its first decline in four weeks. But the Government Purchase Index picked up 1.9%, up for the fifth consecutive week, highlighting continued strengthening in the demand for FHA and VA backed loans. The Refinance Index increased 1.8%. Broadly speaking, mortgage application volume remains high, supported by near-record low mortgage rates. Both refi and purchasing activities are up from a year ago and headed for a strong finish of 2020.

Jobless claims and consumer price inflation come in higher than expected

Weekly initial jobless claims (chart) came in at a level of 853,000 for the week ended December 5, above the Bloomberg estimate of 725,000, and compared to the prior week's upwardly-revised 716,000 level. The four-week moving average rose by 35,500 to 776,000, while continuing claims for the week ended November 28 increased by 230,000 to 5,757,000, north of estimates of 5,210,000. The four-week moving average of continuing claims declined by 260,250 to 5,935,750.

The Consumer Price Index (CPI) (chart) rose 0.2% month-over-month (m/m) in November, above estimates of a 0.1% gain, and compared to October's unrevised flat reading. The core rate, which strips out food and energy, also increased 0.2% m/m, versus expectations calling for a 0.1% gain and October's unadjusted flat reading. Y/Y, prices were 1.2% higher for the headline rate, north of forecasts projecting a 1.1% increase and matching October's unadjusted rise. The core rate was up 1.6% y/y, above projections of a 1.5% gain and in line with October's unrevised increase.

December consumer sentiment surprisingly jumps, wholesale price inflation subdued

The December preliminary University of Michigan Consumer Sentiment Index (chart) unexpectedly rose to 81.4 versus the Bloomberg expectation of a dip to 76.0 from November's 76.9 reading. The surprising improvement for the index came as both the current conditions and the expectations portions of the index rose. The 1-year inflation forecast declined to 2.3% from November's 2.8% rate, and the 5-10 year inflation forecast remained at November's 2.5% level.

The Producer Price Index (PPI) (chart) showed prices at the wholesale level in November ticked 0.1% higher month-over-month (m/m), matching the Bloomberg forecast and below October's unrevised 0.3% increase. The core rate, which excludes food and energy, also gained 0.1% m/m, in line with estimates and October's unadjusted rise. Y/Y, the headline rate was 0.8% higher, compared to projections of a 0.7% gain and the prior month's unadjusted 0.5% increase. The core PPI increased 1.4% y/y last month, below estimates of a 1.5% increase, and compared to October's unrevised 1.1% rise.