The weekly macro review of w/c 22 March 2021 – The Chicago Fed National Activity Index report provided a good summation of economic activity in Feb – US economic growth fell to below average in Feb.
Production, income, and consumption recorded notable declines in Feb. Housing indicators also eased as interest rates increased and inventory remained tight.
Declines in production in Feb were recorded across several reports. The industrial production report (out last week) recorded declines in manufacturing and mining output– especially for motor vehicles. The report highlighted that “severe weather” had impacted production in Feb. An anecdote from the Kansas City Fed manufacturing report for Mar highlighted that delays from this event may still be an issue impacting supply chains. Other anecdotes and data highlight that supply chain disruptions in parts of the country may be severe.
Durable goods orders and shipments also declined in Feb. It is unlikely that the decline in orders was the result of severe weather.
Personal income, expenditure, and saving growth were skewed in Feb by the effect of stimulus and relief checks issued in Jan. Income in Feb shows a significant decline compared to Jan. But the payments made in Jan have helped to fill the gap left by the fall in wages and salaries. Total personal disposable income is +5% ahead of a year ago while wages and salaries are flat to a year ago.
Of most concern was that wages and salaries growth in Feb was flat. But more recent weekly initial claims data is now indicting some potential improvement in employment. Initial unemployment claims across both state and federal programs had fallen to below one million people this week for the first time during the pandemic.
US PCE price growth accelerated in Feb, but remains well below the 2% average level. Growth in prices reflects the unique nature of this crisis – higher prices for (mostly non-discretionary) goods, especially food and used autos, and weaker price growth across most services. Core PCE price growth remains subdued, and little changed at +1.4%. Base effects, especially for energy prices, will be significant over the next few months.
Will Mar be better? Consumer sentiment improved notably in the second half of Mar – aided by another round of (and receipt of) stimulus payments and extension to benefits. This will likely underpin another strong month in consumption expenditure. “Expected conditions” has improved the most but consumers still expect slower income growth in the future.
So far, the regional manufacturing surveys have recorded a rebound after the Feb decline in manufacturing activity. Supply chain delays, input cost increases, and inventory depletion reached extreme levels in Mar. Supply chain delays and input shortages were reported as limiting production output in Mar in the Markit manufacturing PMI. This coupled with higher input costs and only a limited ability to pass on those costs could cause some cash flow and profitability issues. So far, growth in employment and the average workweek have remained consistent.
The global PMI’s were mixed. There was little change to low growth momentum in Japan in Mar. Growth accelerated in the UK – across both services and manufacturing in anticipation of easing restrictions. Growth across the Eurozone shifted from contraction to growth in Mar. Acceleration in manufacturing output growth helped to offset ongoing subdued services activity. Growth in Australia also accelerated – led by faster growth in services output. The outlook weakened as the main JobKeeper program came to an end in Mar.
There are more data releases covered in the review document. Use the links on the contents page to navigate to different country sections. Download the review here;
The macro outlook for w/c 29 March 2021 – A short week with Good Friday and Easter celebrations this week (and next). The focus will be on several Fed speeches, a speech by US President Biden, and key data reports.
US President Biden will give a speech on Wednesday outlining the “Build Back Better” expenditure program covering investment in infrastructure and technology, as well as potential tax code changes.
The US non-farm payrolls will be one of the key data highlights this week. Non-farm payroll data for Mar will still be released this Friday 2 April (Good Friday holiday). There are some market expectations are for a large increase in payrolls in Mar given the improvement/slow-down in initial claims over the last few weeks – led by progress on vaccinations.
US manufacturing data for Mar will also be a focus for the week with the ISM and final Markit PMI reports for Mar. The decline in manufacturing output in Feb was highlighted in the ‘hard data’ – industrial production and durable goods reports – apparently due to severe weather in the South and Midwest. The decline in output was not noted in the Feb ISM report – highlighting the difference in what each report measures. The Mar regional manufacturing surveys show some rebound in activity among firms – with a focus on continued lengthening of delivery lead times and widespread impact from higher input prices.
Other data of note this week:
Japan – BoJ summary of opinions report, retail sales for Feb and the prelim industrial production for Feb. The prelim PMIs show little change in the momentum of growth across manufacturing and services in Mar.
The prelim Eurozone CPI for Mar will be released.
A few Aussie data points including housing finance and retail sales data for Feb. This week, the Aus JobKeeper employment support program for businesses comes to an end and the rental eviction moratorium also comes to an end for some of the larger states (NSW, VIC, and WA).
The US Fed will purchase $24.625bn in US Treasury securities (last week $24.25bn). The Fed will also purchase at least $23.35bn in MBS ($26.16bn last week).
US Treasury issuance will be heavier this week. The US Treasury will settle approx. $486bn in ST Bills, Notes, 10yr TIPS, and 20yr Bonds this week, raising approx. $129bn in new money.
This week, approx. $58bn in ST Bills, Notes, and Bonds will mature on the Fed balance sheet and will be rolled over.
More detail (including a calendar of key data releases) is provided in the briefing document – download the file here;
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
