We’re closing in on Christmas but with a half-day tomorrow and trading desks already thinning out, today is really the last consequential trading day of the week. Also, because of the approaching holiday, we get a ton of economic reports dumped on us today from jobless claims, to personal income and spending (more on that below), to durable goods, and consumer confidence. Not that the market will pay much attention to them, the focus is likely to remain on virus developments and trends. Also, the Stimulus 2.0 bill still awaits the president’s signature with him demanding greater checks for individuals. Given the slowing in some areas of the economy the stimulus, albeit more limited than the CARES Act, will be greatly appreciated when the calendar turns to 2021.  Finally, in this week’s podcast Chris Nichol’s sits down with Steve Andrews, CEO of the Western Bankers Association. They discuss all of the major issues relevant to community bankers today as well the challenges and opportunities that lie ahead in 2021. The itunes link can be found here and the Spotify link here.


newspaper icon  Economic News

With two-thirds of the economy consumption-based it’s critical to look at the confidence of said consumer for tells on future spending and hence GDP. While there was a predictable dip at the early stages of the pandemic it never fell to levels of the Great Recession, perhaps due to the stimulus measures and furloughed workers hopes for a quick return to work. However, with virus cases trending up and renewed lockdowns in some states, and no renewed stimulus bill as of yet will confidence take a hit? For December, confidence is expected to trend slightly higher to 97.0 versus 96.1 in October.  Confidence levels are well off pre-pandemic highs in the  130’s and off the 102 print in September.

 

Conference Board Consumer Confidence

 

And while some point to a vaccine as market positive, that is more than likely a 2021 event and getting it distributed across the country pushes the date of a return to anything like pre-pandemic normal deeper into the year. That’s another reason for the Fed’s tentative outlook for rates which is lower for longer and that longer may well stretch farther than anyone would have thought back in March.

 

 


line graph icon  November Personal Income and Spending Misses Expectations

 

Personal income has now declined in three of the last four months with November printing a –1.1% month-over-month drop which was worse than the –0.3% expectation and worse than the –0.6% drop in October. Personal spending dipped  -0.4% versus –0.2% expected and a gain of 0.3% in October. So another weaker-than-expected report which seems the trend of late. Meanwhile, core PCE, the Fed’s favorite inflation indicator,  was flat for the month, missing the 0.1% expected increase and was unchanged at 1.4% year-over-year.  It hit a multi-year low of  0.91% in April, went into rebound mode but has leveled off since August.  It’s still well below the Fed’s target of 2.0% and is another reason to expect the Fed to remain in ultra-accommodative mode for the next couple years.

Core PCE

The poor back-to-back showing in the personal income numbers along with the same with the retail sales and jobs numbers has the stimulus package arriving to an economy needing a little, well, stimulus. Currently, the Bloomberg consensus forecast for GDP is 4.6% (QoQ) annualized rate.

 


bar graph iconAgency Indications — FNMA / FHLMC Callable Rates

Maturity (yrs) 2 Year 3 Year 4 Year 5 Year 10 Year 15 Year
0.25 0.11 0.21 0.37 0.53 1.41 1.93
0.50 0.12 0.21 0.37 0.50 1.32 1.89
1.00 0.10 0.20 0.35 0.47 1.25 1.79
2.00 0.18 0.32 0.42 1.15 NA
3.00 1.09 NA
4.00 1.03 NA
5.00 1.00 NA
10.00 NA

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Published: 12/23/20 Author: Thomas R. Fitzgerald