• October retail sales rose a better-than-expected 1.7% on the month. Sales in volatile categories were up robustly, but
sales in the control group also rose a strong 1.6%. Leading the charge on this front was a 4% gain in non-store sales.
• Housing starts fell 0.7% in October as starts in the larger single-family segment declined for the fourth straight month.
Improved homebuilder sentiment in recent months indicates that this sector too may soon turn a positive corner.
• President Biden signing the Infrastructure Investment and Jobs Act (IIJA) into law. The legislation will channel $550
billion in new spending on transportation and other critical infrastructure over the next several years. In addition,
the larger Build Back Better (BBB) social spending and climate bill cleared the House and is headed for the Senate.


U.S. – Infections Trend up as Holidays Approach



Last week’s hot inflation report raised plenty of eyebrows, but this third week of November was more balanced on the data front. Retail sales rose a better-than-expected 1.7% month-to-month (m/m) in October. Sales in volatile categories – gas stations (+3.9%), building materials (2.8%), and autos (1.8%) – were up robustly. Receipts at bars at restaurants, meanwhile, were flat on the month. Sales in the remaining subsectors, known as the ‘control group’, did not disappoint, rising a healthy 1.6%. While most categories recorded an improvement, non-store retailers (a good proxy for online sales) led the charge, up 4%.

The healthy gain in the control group together with the October increase in auto sales points to a healthy start to goods spending in the fourth quarter. Scratching beneath the surface, however, reveals a more nuanced backdrop. The sales gain appears to reflect some pull-forward in activity from the busy holiday season. Consumers have been consistently warned about supply chain issues and possible shortages and many appear to have got an early start to their holiday shopping as a result. A recent survey showed that roughly half of holiday shoppers planned to start shopping before November. The strength in non-store retail sales, a very popular holiday shopping channel, adds credence to this view.  While overall spending should remain healthy, it may slow closer to end of the year, reflecting this pull forward. The rise in new COVID-19 infections is an added risk to consumption growth, given that it could further delay the expected rotation in spending toward services (Chart 1).

Financial News us-chart_1

Tilting to the housing market, homebuilding activity continued to lose steam in October, with starts down 0.7% on the month. Given the myriad of hurdles faced by builders, such as supply-chain disruptions, higher material costs and a shortage of workers and serviceable lots, it should be no surprise that homebuilding has eased a bit in recent months. Starts in the larger single-family segment have been the main contributor to recent downward trend. A steady recent improvement in homebuilder confidence indicates that this sector should turn a positive corner in the near-term (Chart 2). While the upcoming removal of monetary stimulus will pose a hurdle to housing demand in the quarters ahead as it weighs on already-stretched affordability, homebuilding activity is likely to remain well-supported given exceptionally low housing inventory.

Financial News us-chart_2

The other big developments this week were on the political front, as President Biden signing the Infrastructure Investment and Jobs Act (IIJA) into law. The legislation will channel $550 billion in new spending on transportation and other critical infrastructure. This type of spending tends to carry high economic multipliers, resulting in a larger economic impact than the initial dollar amount spent. And, by raising the stock of productive capital, it may even raise the potential growth rate of the American economy. Still, given that the investments are spread out over several years and that such projects take time to be rolled out, the boost to the economy is likely to be modest and will take time to trickle in. In contrast, the larger $2 trillion social spending and climate bill, which passed the House late in the week, would provide a more noticeable near-term boost to growth in 2022. This package, however, faces a divided Senate and is still far from a done deal.

Admir Kolaj | 416-944-6318

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