• COVID-19 concerns took center stage again this week as cases surged to new daily records. This overshadowed optimism on vaccine progress and mostly positive economic data, with U.S. equity markets trending modestly lower as a result.
  • Retail sales grew by 0.3% in October, extending their winning streak. Housing market data meanwhile continued to surprise on the upside, with existing home sales up 4.3% on the month and housing starts up 4.9%.
  • Signals from the labor market were not quite as upbeat, with initial jobless claims recording a mild increase to 742k last week from 711k the week earlier.



 It’s Always Darkest Before the Dawn

Financial News- As COVID-19 Cases Surge Again, Consumers Increasingly Tilt Back Online

Concerns around the spread of COVID-19 took center stage once again this week as infections surged to new records. Optimism over vaccine progress and broadly positive economic data generally played second fiddle. Equity markets trended modestly lower on the week as a result.

On the economic data front, retail sales improved by 0.3% in October, extending their winning streak to six months. The outturn, however, was below market expectations and a marked deceleration in the pace of gains from the 1.5% averaged in the three months prior. Within this slowing trend, there’s a noticeable shift toward online shopping. Sales at non-store retailers, a proxy for online sales, appear to be taking the lead once again as in-store sales moderate – a divergence that is in line with the third wave of COVID cases (Chart 1).

Home sales, meanwhile, continued to be robust in October. Existing home sales defied market expectations, rising by 4.3% (Chart 2). The growth in resale activity over the past several months has been nothing short of remarkable. Sales are now up nearly 27% from year-ago and 19% from the pre-crisis peak. The number of homes for sale, on the other hand, is in short supply. At the current sales pace, there is just 2.5 months of supply on the market – a record low. With such little product for homebuyers to choose from, the median sales price accelerated further, to 15.5% year-over-year. The strong acceleration in home price growth has overwhelmed the positive impact of record-low mortgage rates on housing affordability. The combination of deteriorating affordability and low supply is likely to lead to a more moderate pace of sales growth going forward.

The good news is that new supply does appear to be responding to these market forces. With builder confidence riding high, housing starts also defied expectations in October, rising a better-than-expected 4.9%. The increase was driven entirely by single-family starts – a clear signal of the shift in housing preferences during the pandemic.

Housing Market Remains a Bright Spot as Resales, Starts Surge Higher

Signals from the labor market were not as upbeat. While continuing jobless claims trended lower at the beginning of the month, initial jobless claims recorded a mild increase to 742k last week from 711k the week earlier. The still-elevated level of initial claims, a proxy for layoffs, points to softer labor market momentum. The rising spread of COVID-19 is an added near-term risk. With hospitalizations also trending higher, several jurisdictions throughout the U.S. are leaning more heavily on containment measures, which will weigh on business activity and hiring. What’s more, with the virus spreading out of control, stronger measures, such as lockdowns, cannot be ruled out for some parts of the country.

With more containment measures, no new fiscal supports, and the expiry of several Fed emergency lending programs (corporate credit, municipal lending and Main Street Lending programs), the near-term outlook is looking darker. Indeed, it appears that a sustained improvement in economic activity will likely have to wait for a vaccine. Fortunately, there is a light at the end of the tunnel. Major positive developments on the vaccine front in recent days suggest potentially earlier availability and the return to normal in 2021. It’s always darkest before the dawn.

Admir Kolaj, Economist | 416-944-6318


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