The Fed noted that some sectors are performing well while others are not. Specifically, it said that the manufacturing sector is strong, despite continuing supply chain difficulties. It also heralded strength in the residential real estate sector. On the contrary, commercial real estate is troubled due to weak demand for office and retail space. The Fed said that loan demand is flat, but that many market participants expect it to accelerate once more stimulus is enacted.
There were two political events in the United States in the past week that generated headlines, but the one with fewer headlines will ultimately have a greater economic impact. On January 5, there were runoff elections for two Senate seats in Georgia. Both seats were captured by Democrats, an unusual event in a state that has gone heavily Republican in recent decades.
Consequently, the Democrats will now control the US Senate, thereby enabling incoming President Biden to gain confirmation for his cabinet and judicial appointees as well as to pass some legislation. Specifically, it is likely that Biden will seek further stimulus from the Congress in order to extend unemployment benefits, fund virus testing and vaccine distribution, support distressed state and local governments, and boost infrastructure spending.
Again, jobs, which seem to lag slightly, grew to meet spending growth. Once again, jobs grew rapidly, but almost all the spending growth was inflation. By 2019, for the second time, jobs growth exceeded construction volume by almost 15%. Although we may get slight jobs growth in the next few months, there is little to no volume growth to support it.
For European governments, an improvement in growth will work wonders for government finances, which have been severely disrupted during the pandemic. The European Central Bank will likely continue to provide support to the market for government debt, especially as long as inflation remains muted. Foreign interest in Chinese assets, which includes substantial US participation, has been driven not only by Chinese deregulation, but by other factors as well. In addition, the growing interest of US-based financial services companies in the Chinese market is, in part, driven by expectations that the Chinese middle class will continue to grow at a rapid pace. A rising middle class in a country of high savers is attractive for the sale of wealth management and other services.
This specific includes personal protective products and technologies useful for universal remote interaction. The fourth 1 / 4 outbreak of the disease within the European continent swiftly abated due to typically the imposition of economic constraints as well as lowered consumer mobility. In add-on, many governments in typically the European Union extended support for the labor market well into 2021, thereby averting further economic distress. The result is likely to be a strong upturn in growth in the first quarter of 2021 after a likely decline in activity in the last quarter of 2020. Moreover, vaccine distribution is under way, thereby setting the stage for a significant acceleration in growth later in the year. As in the United States, full implementation of the vaccine will likely entail a reduction in household saving and an increase in spending on consumer-facing services.
As for business sentiment, the Fed said that businesses are optimistic about the ultimate impact of vaccination but remain concerned about the current surge in infections. Leading into 2017, spending once again reached a rate of near record growth, second only to.
With control of both the House and the Senate, these measures will likely be voted on. It is likely that the Democrats will use this tool to pass stimulus measures. With this expectation, financial markets pushed up bond yields as well as equity prices on January 6. That reflects many investors’ belief that there will be more government borrowing and that the additional spending will have a positive impact on economic growth. The latest Beige Book, published last week, indicated that the economy continues to grow but at a diminished speed. Specifically, the Beige Book noted that economic activity grew in eight of the 12 districts in the past month, with a significant weakening of consumer spending in many districts. It said that “most districts reported an intensification of the ongoing shift from in-person shopping to online sales during the holiday season. ” It also said that there had been a weakening of automotive sales.