Monitoring the Economy

Eakinomics: Monitoring the Economy With the number of COVID-19 cases rising, and Congress and the administration in a logjam over additional support for the economy, there has been increasing worry about the health of the recovery from the COVID-19 downturn. While concern is merited, a double-dip is hardly assured. This week will contain important new information about the health of the economy. On Tuesday, the purchasing managers' index for manufacturing and a Census survey of construction spending will provide a good read on the goods sector supply chain. In addition, on Tuesday Federal Reserve Chairman Jerome Powell and Treasury Secretary Steven Mnuchin will testify to the Senate Banking Committee. There will be an overview of the outlook, but expect the fireworks to center on Mnuchin’s decision to let some emergency Fed lending programs expire. The remainder of the week yields the Fed “Beige Book” – anecdotal information from the regional Federal Reserve banks – new claims for unemployment insurance, the Institute of Supply Management report on non-manufacturing (i.e., services), and – on Friday – the employment report for November. The latter is likely the most important for the future path of policy. A very weak report may well provide the impetus for stimulus talks, while a strong report may take urgency out of the effort. Unfortunately, there is a good chance that the report will be difficult to interpret. Typically, November contains a large amount of seasonal hiring as firms gear up for the holiday customer load. Thus, in seasonally adjusted data, anything that does not show this sharp increase will “underperform.” Subtracting out the expected temporary hiring may leave a low (or even negative in some sectors) employment growth number. Of course, in some sectors like warehousing or delivery, the employment growth with be much greater than the usual seasonal bump, and the reverse will be true. Either direction, this will be more a reflection of the coronavirus than the state of labor demand. It is a big week for policy. Congress needs to fund the government, pass the annual defense authorization, and come to grips with the need for additional economic support. The data received this week will be central to those discussions.