Economic Outlook – 29 November 2020


  • The Markit flash composite PMI came in at 57.9 in November  (56.3  in October),  signaling  the  broadest  improvement  in  private-sector  activity  since  March  2015. The degree  of  optimism  towards  future  output  sprang  to  its  highest  point  since  May  2014,  with  survey  respondents  citing  improved  hopes of a COVID-19 vaccine and an end to election uncertainty as confidence boosters.
  • The manufacturing sub-index  climbed  from  53.4  to  a  74-month  high of 56.7. Factory output expanded at its fastest pace in years while new orders benefited from  strong  domestic  demand.  New  export   orders,   meanwhile,   were   up   only   marginally.   Also   noteworthy,   input   cost   inflation   at   firms   operating   in   the   manufacturing sector was the most pronounced in over two years “with supplier delays more widespread than at any other time in the survey’s 11-year history”. Higher input prices seemed to have been  at  least  partially  passed  on  to  clients,  as  evidenced  by  Markit’s  report  of  the  sharpest  rise  in  charges  in  two  years.
  • The  services sub-index, meanwhile, improved from 56.9 to a 68-month high  of  57.7.  New  business  accumulated  at  a  faster  pace,  while  employment expanded the most since data collection began in October  2009.  Input  and  output  costs  rose  at  a  record  pace  in  the month.
  • Durable  goods  orders  continued  to  recover  in  October  as  the  economic  re-opening  was  expanded.  Total  orders  advanced  1.3%,  overshooting  the  +0.8%  target  set  by  consensus.  Although  this was the sixth consecutive gain for this indicator, total orders were   still   down   2.2%   from   their   February   level.   Orders   for   transportation equipment (+1.2%) were propped up in October by the    non-defence (+38.8%)    and    defence    (+79.1%)    aircraft    categories.  Orders  for  motor  vehicles  and  parts,  meanwhile,  fell  3.2%.Excluding  transportation,  orders  advanced  a  consensus-topping    1.3%    on    gains    for    computers/electronics    (+3.1%),    fabricated   metals   (+2.3%),   electrical   equipment   (+1.0%),   and   primary metals (+0.4%).The report also showed that shipments of non-defence   capital   goods   excluding   aircraft,   a   proxy   for   business  investment  spending,  rose  2.3%  in  October,  marking  a  sixth consecutive improvement. As a result, core shipments stood 4.9% above their pre-pandemic level. Core orders (+0.7%), which are indicative of future capital spending, also moved further past their pre-recession peak in the month.
  • Nominal personal  income  shrank  0.7%  in  October,  erasing  the  prior  month’s  gains  (+0.7%).  As  the  labour  market  continued  to  recover, the wage/salary component of income progressed 0.7% but  disposable  income  nonetheless  dropped  0.8%  as  “federal  economic  recovery  payments  slowed”  and  “pandemic-related  assistance  programs  continued  to  wind  down”.  Indeed,  income  derived from government transfers retraced 6.2% in the month on a  14.1%   plunge   in   the   unemployment   insurance   segment.
  • Nominal personal spending, for its part, rose 0.5% in October but remained 1.6% below its February level. While goods consumption stood 7.8%  above  its  pre-crisis  mark,  services  consumption  was  still 5.8% below its peak. The latter, which typically holds up better in times  of  recession,  was  hit  harder  during  lockdowns  and  is  recovering more laboriously because of physical distancing rules imposed to limit the spread of the virus.
  • After increasing from 86.3 to 101.4 from  August  to  October,  the  Conference  Board  Consumer  Confidence  Index  fell  5.3  points  in  November to 96.1. The deterioration stemmed almost entirely from an 8.7-point   decline   in   the   expectations   sub-index,  which   tracks   consumer sentiment for the coming six months. This indicator slid from 98.2  to  89.5  as  a  smaller  portion  of  respondents  expected  to  see  improvements   in   business   conditions   (from   36.0%   to   27.4%)   and   employment  (from  32.0%  to  25.9%).  However, purchasing  intentions  remained  elevated  for  homes  (from  6.1%  to  7.2%),  automobiles  (from  9.6% to 11.6%), and major appliances (from 43.3% to 43.9%).
  • After  increasing  no  less  than  75.8%  from  April  to  September,  sales  of  newly built homes edged down 0.3% in October to 999K (seasonally adjusted and annualized). This was above the 975K print expected by consensus  and  significantly  above  the  pre-pandemic  peak  (774K  in  January). The slight decrease in sales, combined with an unchanged number of homes on the market (278K), meant the inventory-to-sales ratio  stayed  put  at  an  all-time  low  of  3.3,  a  figure  indicative  of  extremely  tight  supply.  Also  worth  noting,  the  number  of  properties  sold  but  not  yet  built  totaled  385K  in  October,  the  highest  in  data  going back to 2014.
  • According  to  the  S&P  Core  Logic  Case-Shiller  20-City  Index, home prices rose a seasonally adjusted 1.27% month-on-month in September after  climbing  1.35%  in  August.  This marked  the  steepest  two-month progression since May 2013. All of the 20 cities covered by the index saw higher prices in September, led by Seattle (+2.3%), San Diego (+2.2%), and Phoenix (+2.0%). On a 12-month basis, the index was up 6.6%, up from 5.3% the prior month and the most in two  and  a  half  years.  The  rapid  rise  in  home  prices  in  recent  months is consistent with increased demand on the resale market (in October existing-home sales reached a 15-year high of 6,850K in  seasonally  adjusted  and  annualized  terms).Aside  from  the  resurgence  in  sales,  lack  of  supply  also  contributed  to  boost  prices.
  • Initial  jobless  claims  totaled  778K  in  the  week  ended  November  21, up from 748K the week before. This increase, the second in a row, was undoubtedly linked to the significant jump in the number of COVID-19 cases in the country. Continuing claims, meanwhile, dropped from 6370K to a post-crisis low of 6071K in the week to November  14.  The  continued  decrease  in  the  number  of  people  who  have  claimed  benefits  for  two  weeks  or  more  does  not  necessarily mean that the situation is improving fast in the labour market. It need be borne in mind that the length of time workers can  receive  unemployment  benefits  varies  across  states.
  • The  second  estimate  of  Q3  GDP  growth  pegged  in  at  +33.1%  in  annualized terms, unchanged from the preliminary estimate and the biggest quarterly gain since data collection began in the late 1940s.  The  details  of  the  report  showed  a  slight  downgrade  to  both consumption and government spending, the latter perfectly offset by upward revisions to business and residential investment. Trade’s   contribution   to   growth   remained   roughly   unaltered.
  • The Federal Reserve published the minutes from its 4 November policy  meeting. It  seems  that  a  change  in  forward  guidance  on  bond  buying  may  come  shortly  (possibly  at  the  December   meeting).   The   consensus   seemed   to   be   for   a   qualitative outcome-based guidance that would link the horizon over  which  the  Committee  anticipates  to  be  conducting  asset  purchases to economic conditions.  As for a change in the size and duration of the QE program, it did not  seem  to  be  in  the  FOMC’s  immediate  plans.  The  committee  appeared  largely  comfortable  with  the  degree  of  monetary  accommodation being provided at the moment.
  • A new round of vaccine optimism and diminishing political uncertainty helped stocks build on recent gains for the holiday-shortened week. Most of the major benchmarks hit record highs, with the narrowly focused Dow Jones Industrial Average gaining the most attention by crossing the 30000 threshold for the first time. Reopening hopes boosted cyclical shares, particularly energy stocks, while health care, utilities, consumer staples, and real estate shares lagged. The market was closed Thursday for the Thanksgiving holiday, but weekly trading volumes remained unusually elevated.
  • The   most   important   piece   of   news   will   be   November’s non-farm  payrolls.  Hiring  should  have  continued  apace  in  the  month  judging  from  a  decline  in  continuing  claims  between   the   October   and   November   reference   periods,   a   development that may have translated into an 350K increase in payrolls.
  • The  household  survey  is  expected  to  show  a  similar  progression in employment which would be consistent with a 0.1% increase   in   the   unemployment   rate   to   7.0%,   assuming   the   participation  rate  rose  two  ticks  in  the  month.  If  the  indices  published by regional Federal Reserve banks are any guide, the ISM manufacturing index could have eased slightly in November but   continued   to   signal   a   sharp   amelioration   in   operating   conditions  during  the  month.
  • Several  indicators  for  October  will  be  published  including  factory  orders, pending  home  sales, construction   spending   and   the   trade   balance.
  • The   Federal   Reserve  will  publish  the  latest  edition  of  the  Beige  Book  which  could show evidence of a deceleration in the country’s recovery process.  Several  Fed  officials  are  scheduled  to  give  speeches,  notably Mary Daly (Tuesday), Charles Evans (Tuesday) and John Williams  (Wednesday).  Finally,  Fed  Chairman  Jerome  Powell  is  scheduled  to  testify  before  the  Senate  Banking  Committee  on  Tuesday and before the House Finance Panel on Wednesday.


  • Chancellor of the Exchequer Rishi Sunak unveiled the government’s plans for spending next year and the latest economic forecasts, which showed much higher debt levels (underlying debt will rise to 91.9% of gross domestic product), a sharp rise in unemployment to 7.5%, and severe pressure on public finances until at least 2024. The economy was forecast to shrink 11.3% this year and then bounce back strongly for two years, but output is not expected to return to pre-crisis levels until the end of 2022. He also announced a pay freeze for 1.3 million public sector workers, although health workers and the low paid will see a rise; a sharp cut in the foreign aid budget; and extra funds for infrastructure in the north.
  • The proportion of British workers on furlough has jumped to its highest level since late June following the introduction of a temporary four-week lockdown across England to reverse a second wave of COVID-19 cases, official figures showed on Thursday. Businesses reported that 15.0% of staff on average were on furlough between 2 and 15 November, up from 9.0% in the previous survey which covered the second half of October, the Office for National Statistics said. Britain’s government placed England under a four-week lockdown which started on 5 November which closed restaurants, pubs, non-essential retailers and most other businesses open to the public. Finance minister Rishi Sunak had intended to terminate the furlough programme at the end of October, but the second wave of COVID-19 cases forced him to extend it until the end of March.
  • British car production slumped by an annual 18.2% in October as the coronavirus pandemic and lockdown measures continue to hit demand. A total of 110179 cars rolled off assembly lines last month leaving output in the first 10 months of the year down a third at 743003 vehicles, according to the Society of Motor Manufacturers and Traders (SMMT). Britain’s automotive sector is also awaiting clarity on the trading terms it will have with its biggest export market, the European Union, and faces a ban on the sale of new petrol and diesel cars from 2030.
  • Mixed news last week suggests that a Brexit deal breakthrough is still not imminent. While it was important, a deal may not be finalised until next week. The base case remains a deal. The EU summit on 10 December seems like the last meeting where EU leaders can approve a deal, so both the EU and the UK have only very limited time to make up their minds.


  • In Germany, Chancellor Angela Merkel announced in Parliament that current coronavirus restrictions would be tightened and extended until 20 December, warning they may be extended again until the end of January. The UK outlined a stricter tier system to replace the month-long lockdown ending on 2 December. Most of northern England will be placed on tier three, while London and the southeast will be on tier two. Conservative MPs said the government would face a rebellion when Parliament votes on the new regime next week. Portugal imposed a state of emergency for 15 days.
  • The Markit Eurozone’s Flash Composite PMI sank back into  contraction  territory,  sliding  from  50.0  in  October  to  a  six-month  low  of  45.1  in  November.  The  report  continued  to  exhibit  divergent trends by sector. The manufacturing sub-index, on the one hand,  slipped  from  54.8  to  53.6  but  continued  to  signal  a  healthy  rate  of  expansion.  The  output  and  new  orders  gauges  stayed well above the 50-point threshold separating expansion from contraction. Input prices, for their part, rose at their fastest pace   since   January   2019,  as   strong   demand   exacerbated   shortages  of  some  key  raw  materials.
  • Alternatively,  services-producing  businesses  suffered  from  a  sharp  increase  in  the  number  of  COVID-19  cases  and  the  reintroduction  of  social  distancing measures to prevent further spread of the virus across the  region.  The  associated  sub-index  slipped  from  46.9  to  41.3.  Incoming new business in the services sector shrank for a fourth month in a row, with the pace of contraction accelerating since October.
  • The European Commission’s Economic Sentiment Index fell for the first time in 8 months in November, sinking 3.5 points to 87.6. Confidence deteriorated in all five sectors surveyed: retail (-12.7 vs. -6.9 the prior month), services (-17.3 vs. -12.1), consumers (-17.6 vs. -15.5), construction (-9.3 vs. -8.3) and manufacturing (-10.1 vs. -9.2). At the national level, sentiment cooled in Italy (81.5 vs. 90.2 the prior month), France (86.9 vs. 91.7), Germany (94.2 vs. 97.0) and Spain (87.5 vs. 89.5).
  • Eurozone banks will be allowed to pay dividends again next year if they convince supervisors that their balance sheets are strong enough to survive the fallout from the coronavirus pandemic, Yves Mersch, vice chairman of the ECB’s supervisory board, told the Financial Times that it would be difficult to continue the ban, which started in March, citing legal uncertainty over its enforceability and expectations that other countries may allow banks to restart payouts.
  • The most post important release this week are October’s retail sales, unemployment rate and  consumer  price  index.


  • Some state-owned enterprises (SOEs) whose bonds have been under pressure experienced a sell-off in their shares. For example, shares of China Hongqiao, parent of an aluminum producer, fell 8.0% when the company said it would raise HKD 1.9 billion via a share placement with institutional investors at a roughly 14.0% discount to the previous day’s close. A domestic ratings agency downgraded the onshore bonds guaranteed by Hongqiao, raising worries for other bond issuers with maturities in the coming 12 months.
  • Chinese stocks rose for the week as solid economic data outweighed concerns about rising defaults among domestic bond issuers. The blue chip CSI 300 Index added 0.8% while the Shanghai Composite Index gained 0.9% for the week, according to Reuters. In fixed income markets, the yield on the sovereign 10-year bond ended the week roughly unchanged. In currency trading, the yuan ended broadly flat against the US dollar. A recent uptick in defaults in China’s high yield bond market has raised expectations that Beijing will focus on corporate sector deleveraging in the near term, as opposed to further stimulating the economy.
  • In China, the official PMIs will be released on Monday and the private measure on Tuesday with both measures expected to be holding up quite well despite early signs of withdrawal of monetary easing.

Sources: T. Rowe Price, Reuters, MFS Investment Management, National Bank of Canada, Danske Bank, M. Cassar Derjavets.