United States
  • Good news on the vaccine front cheered financial markets early in the week. However, as the week wore on and COVID-19 infections worsened, that optimism started to fray a bit.
  • Many jurisdictions have increased restrictions as hospitals are feeling the impact. High frequency data are starting to show a loss of momentum, putting downside risk to fourth quarter economic growth.
  • With inflation and interest rates low, now is the time for fiscal relief. Unfortunately, a deal in the lame duck session of Congress looks like a long shot.



U.S. – President-Elect Biden Has His Work Cut Out For Him

Financial News- Third Wave Reaches a Critical Point

Good news on the vaccine front cheered financial markets early in the week. However, as the week wore on and COVID-19 infections worsened, that optimism started to fray. Vice President Biden was also declared President-Elect Biden over the weekend after a record-breaking voter turnout. But there is no time for him to bask in his victory. The third wave has been building speed for more than a month now and has led to increased restrictions as hospitalizations reach a new peak nationally, and in many areas are reaching the breaking point (Chart 1).

Restrictions are generally more targeted than the spring, but some jurisdictions are taking strong measures. Chicago has issued a 30-day “stay-at-home” advisory and Detroit is closing schools for two months. Many school systems in big cities, including Chicago and Philadelphia did not reopen for in-person learning in the fall, and will now be keeping students out of the classroom longer. Overall, six districts that re-opened in-person learning in the fall have since reversed course.

We economists are trying to sort out how much these restrictions will curtail spending, and economic growth. The second wave of infections in the summer did not lead to as much of slowdown as first feared. However, there are a couple of reasons why there may be more of an impact now. First, the current surge is more widespread across the country. The “second wave” was really a first wave in many states that were not hard hit in the early spring. Other regions’ case counts remained low through the summer, and were still gradually re-opening their economies, helping to keep up momentum on a national basis. The current more extensive surge seems more likely to show up in the national data.

Financial News- Weak Demand Weighs on Service Inflation

Second, in the summer surge, Americans had recently received relief checks and people who were unemployed were still receiving a generous $600/week extra in addition to their usual benefits. This boost to income helped to offset reduced activity in some sectors. That is no longer the case, and Democrats and Republicans in Congress are still far apart on the size of a package. The need to pass a spending bill to fund government beyond December 11th presents an opportunity to tack on a relief package, but it looks like a Hail Mary pass at this point.

Still, there is a good case for additional fiscal supports. October’s CPI report showed continued softening in core services inflation, which typically reflects economic weakness more so than goods prices do (Chart 2). With unemployment still elevated and the pandemic worsening, we expect inflation pressures to remain subdued for quite some time, keeping borrowing costs low for Washington.

So far, the deterioration in the high-frequency data is modest. Weekly credit and debit card spending have started to lose momentum and passenger throughput at U.S. airports has fallen modestly for two consecutive weeks. We will be watching the weekly data closely to gauge momentum at year end. The fourth quarter got off to a strong start, and right now we are tracking a 3.7% (annualized) pace, but risks appear tilted to the downside.

Leslie Preston, Senior Economist | 416-983-7053

 This report is provided by TD Economics. It is for informational and educational purposes only as of the date of writing, and may not be appropriate for other purposes. The views and opinions expressed may change at any time based on market or other conditions and may not come to pass. This material is not intended to be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities and should not be considered specific legal, investment or tax advice. The report does not provide material information about the business and affairs of TD Bank Group and the members of TD Economics are not spokespersons for TD Bank Group with respect to its business and affairs. The information contained in this report has been drawn from sources believed to be reliable, but is not guaranteed to be accurate or complete. This report contains economic analysis and views, including about future economic and financial markets performance. These are based on certain assumptions and other factors, and are subject to inherent risks and uncertainties. The actual outcome may be materially different. The Toronto-Dominion Bank and its affiliates and related entities that comprise the TD Bank Group are not liable for any errors or omissions in the information, analysis or views contained in this report, or for any loss or damage suffered.