Covid-19 Restrictions Caused US Personal Spending to Decline in December

A series of mixed economic data ensured a range bound movement of the greenback against other major currencies Friday. However, the equity markets ended in red against the backdrop of rising worries about GameStop issue. The video game retailer’s share surged over 40% after Robinhood stated that it would permit restricted purchase of the stock and other stocks, which were subject to heavy short-selling. GameStop stock jumped 1000% in January, while AMC Entertainment surged 500%, sparking worries of bubble created by access to money at cheap rates and Covid-19 vaccine related anticipations.

The Dow Jones fell by 622 points (2%) to 29,981. The S&P 500 plummeted 73 points (1.9%) to 3,714. The Nasdaq plunged 267 points (2%) to 13,071. In the meantime, the earnings season has not disappointed investors so far. Most of the top enterprises, including Honeywell, Visa and Caterpillar have done better-than-anticipated. But Chevron posted disappointing earnings. With respect to economic data, personal spending declined for the second consecutive month even though less-than-anticipated while income surged better than forecast.

As per data published by the Bureau of Economic Analysis, personal income increased 0.6% m-o-m in December, following a decline of 1.3% in the prior month and surpassed the growth of 0.1% anticipated by economists. The increase was led by compensation, government social benefits and personal dividend income. During the same period income of business owners declined. Wages for civilian workers increased 0.7% q-o-q in December quarter, from 0.5% rise in the earlier period and greater than market’s forecasts for a 0.5% gain. Wages and salaries surged 0.9%, following a 0.4% increase in the third-quarter. Benefit costs rose by 0.7%, following a 0.5% growth.

Personal spending fell by 0.2% m-o-m in December, following an upwardly amended 0.7% decline in November and surpassed market forecasts for a 0.4% drop. The decline was mainly due to restrictions enforced to contain Covid-19 infections that caused slowdown of business and economic activity, in addition to job losses. Declines were recorded in buying of recreational goods and vehicles, food services, food and beverages, and hospitals, but partially mitigated by a rise in spending for motor vehicles and parts, namely electricity and light trucks.

According to the Institute of Supply Management, Chicago’s purchasing managers’ index increased to 63.80 in January, from 59.50 in the prior month and greater than the reading of 58.40 anticipated by economists. The reading reflects the robust growth in Chicago business activity since July 2018, aided by a rise in economic activity at the start of 2021. Production recorded the biggest monthly gain to record a new peak since January 2018. Among the other four indicators, fresh orders recorded the highest level since November 2018. On the contrary, employment posted the largest drop, a decrease for the 19th month in a row.

According to the data published by the University of Michigan, consumer sentiment decreased slightly to 79 in January, from 80.70 in the earlier month. Economists had anticipated no change in the initial estimates of 79.20. Current economic conditions index declined to 86.70 in January, from 87.70 in December. Expectation index improved to 74 in January, from 73.80 in the prior month. With respect to price forecasts, economists anticipate inflationary pressure for the current year and next five years to remain unaltered at 3% and 2.5%, respectively.

According to the National Association of Realtors, pending home sales fell by 0.3% m-o-m in December, following a decline of 2.5% in the earlier month and better than the 0.5% drop anticipated by economists. Agreements to purchase earlier owned homes surged 21.4% y-o-y in December, following a 16.6% increase in November as interest rates stood at record low levels and supply was at all-time lows. All four regions witnessed double-digit contract signings. On m-o-m basis, pending home sales fell for the fourth consecutive month, but stood near historical high in December.

The mixed economic data is anticipated to keep the greenback range bound against other major currencies in the short-term.