United States
  • Major U.S. equity markets edged lower this week, extending their losing streak to four weeks. This came alongside an uptick in new COVID-19 cases and growing evidence that the economic recovery has shifted into lower gear.
  • Existing home sales rose by 2.4% to 6.0 million units (annualized) in August – another post-Great Recession record. New single-family home sales did even better, rising 4.8%.
  • The labor market is generally still moving in the right direction, but it is doing so at a slower pace. Initial jobless claims rose modestly to 870k last week, extending a flat trend just below 900k. On a more positive note, continuing claims continued to edge lower earlier in the month.

This weeks markets



 U.S. – More Evidence of Recovery Shifting into Slower Gear

Financial News- Home Sales Have Risen to Multiyear highs Major U.S. equity markets continued to edge lower this week, with the S&P 500 down 1.8% from last Friday’s close as at the time of writing. This disappointing performance, which extends the losing streak to four weeks, came alongside a recent uptick in COVID-19 cases and growing evidence that the economic recovery has shifted into lower gear.

On the data front, the housing market – one of the brightest areas of the U.S. the economy – continued to be a source of good news. Existing home sales rose by 2.4% in August to 6.0 million units (annualized), which marked another post-Great Recession record. The improvement spanned both single and multi-family segments and all four Census regions, though gains in the latter were concentrated in Northeast (13.8%). Meanwhile, in part due to a low inventory backdrop, home price growth accelerated sharply into double digit territory, with the median existing home price up over 11% in August relative to a year ago. New single-family home sales were even more impressive, rising 4.8% even after hitting the highest level in nearly 14 years in July. The level of new home sales has only been higher in the frenzied housing market of the mid-2000s that preceded the Great Recession (Chart 1).

As we argued in a recent publication, housing can’t remain divorced from the broader economy forever (see here). While we expect record-low interest rates to continue to support demand as the economy recovers, the acceleration in prices goes in the other direction. Diminished affordability will become a barrier to further increases. At the same time, the end of mortgage forbearance programs could result in more distressed sales in the quarters ahead. Finally, historically low population growth will weigh on demand growth once the initial recovery phase has played out.

Financial News- Elevated Infection Spread Likely to Slow the Recovery ProcessIndeed, the jobs recovery is already showing signs of fatigue. After a relatively steady drop in the months prior, initial jobless claims have remained near the 900k mark since the end of August. Last week they rose modestly to 870k, extending the mostly-flat trend. On a more positive note, continuing claims decreased by 167k to a still-elevated 12.6 million for the week ended September 12th (this data is delayed by a week). Meanwhile, the number of people collecting unemployment benefits from ‘all programs’ edged lower, but remained elevated at 26 million at the start of the month.

All in all, the labor market is generally still moving in the right direction, but it is doing so at a much slower pace. The capricious nature of the health crisis remains a downside risk, with a still-elevated infection spread to continue weighing on the recovery (Chart 2). In the meantime, without additional income supports, spending could take a tumble as the high numbers of unemployed are forced to reduce consumption. With the Fed clearing up its stance (and limitations) on monetary policy last week, the ball is clearly in Congress’ hands. On this front, yesterday it was announced that Treasury Secretary Steven Mnuchin and House Speaker Nancy Pelosi have agreed to restart stimulus talks, in what marks a small positive step in the right direction.

Admir Kolaj, Economist | 416-944-6318

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