This Week In The Economy: Surging US Daily COVID Cases, Entrenched Weak Recovery Without More Stimulus, Mixed China Growth, Housing Boom, Brexit Latest
By: Brai Odion-Esene
Tags: Brexit, Coronavirus Update, Covid 19 Crisis, Federal Reserve, Macroeconomics

This Week In The Economy: Surging US Daily COVID Cases, Entrenched Weak Recovery Without More Stimulus, Mixed China Growth, Housing Boom, Brexit Latest

Welcome to a regular snapshot-review of U.S. and international economic news that aims to 1) provide a window into the challenges and decisions facing businesses today, 2) determine the direction of economic policy — such as the speed at which central banks decide to raise interest rates, and 3) assess what the impact will be for consumers.

US COVID-19 Cases Approaching Summer Levels, Europe Surge Continues

The number of confirmed COVID-19 cases around the world once again rose significantly this week, with a corresponding spike in the number of deaths — 41,791,766 confirmed cases, with 12,268,206 active cases and 1,138,671 fatalities.

The outbreak in the United States continues to rage unabted — at the time of writing there were 8,498,360 confirmed cases, 2,914,394 active and 226,314 deaths.

This comes as daily coronavirus cases in the United States surge to levels not seen since the summer, with 14 states reporting peak Covid-19 hospitalizations in the past week: Alaska, Arkansas, Iowa, Kansas, Kentucky, Montana, Missouri, Nebraska, North Dakota, Oklahoma, South Dakota, Utah, West Virginia and Wisconsin.

So far this week (from October 18–22), there have been 289,657 new COVID-19 cases in the United States, compared to 249,734 during the same five-day period last week. On Thursday alone, the U.S. reported 69,299 new infections — compared to 61,025 new cases on the same day last week.

India remains in second place, and the number of confirmed cases has risen to 7,763,067. Of that number, 697,205 are active and there have been 117,365 fatalities.

Brazil is still third with 5,323,630 cases at time of writing — 388,373 active and 155,962 deaths. Russia has 1,480,646 confirmed cases, 335,870 active and 25,525 deaths.

Argentina is in fifth place with 1,053,650 cases — 173,852 active, 27,957 fatalities. Spain has moved up to sixth place with 1,026,281 confirmed cases, of that 991,760 are active cases, and 34,521 deaths.

France is surging up the list as well, and is now seventh with 999,043 cases — 856,234 of that number are active, and there have been 34,210 fatalities.

Colombia is eighth with 990,270 confirmed cases, of which 66,922 are active and 29,636 fatalities. Peru is next with 879,876 confirmed cases, 49,173 of them are active and 33,984 fatalities. Mexico rounds out the top ten with 874,171 cases — 149,886 active and 87,894 deaths.

Cases are also spiking in the United Kingdom, with a three-tier lockdown system now in place in which various regions are classified as being on “medium”, “high” or “very high” alert for outbreaks. The cushion the blow to businesses and workers located in impacted areas, UK Chancellor Rishi Sunak announced additional financial support starting in November:

Part-time job support scheme — for all tiers of restrictions, open businesses experiencing “considerable difficulty” will be given extra help to keep staff on as government significantly increases contribution to wage costs under the Job Support Scheme, and business contributions drop to 5%.

open businesses experiencing “considerable difficulty” will be given extra help to keep staff on as government significantly increases contribution to wage costs under the Job Support Scheme, and business contributions drop to 5%. Self-employed support — A grant for self-employed people has been doubled to 40% of usual average profits, capped at £3,750 across three months. It will run for six months from November.

A grant for self-employed people has been doubled to 40% of usual average profits, capped at £3,750 across three months. It will run for six months from November. Additional business support — Firms in Tier 3 areas (“very high” alert) will be eligible for a grant of up to £3,000 a month if affected by restrictions, even if they remain open. Hospitality, accommodation and leisure businesses in Tier 2 and 3 will be able to get additional grants of up to £2,100 a month.

Federal Reserve Official: Need More Fiscal Support To Ensure Strong Recovery

Democrat and Republican lawmakers have been unable to agree on how much additional fiscal stimulus is needed to help the economy withstand the impact of the coronavirus outbreak, a statelmate that Federal Reserve officials warn could put the recovery at risk.

In a speech this week, Federal Reserve Board member Lael Brainard noted that the $2 trillion CARES Act passed by Congress early on in the crisis “played a significant role in supporting aggregate demand in the spring and summer.”

And with “cash-constrained households” making up a large fraction of the population, more financial assistance will be needed. “With unemployment and reduced hours likely to persist, many of these households are unlikely to be able to sustain recent levels of consumption without additional fiscal support as well as extended loan forbearance and eviction moratoriums,” Brainard said.

And its not just households who need more help. She noted the many hard-hit small businesses who are struggling “as revenue shortfalls persist.” Also, state and local governments “are likely to find it more difficult to sustain employment and spending levels” the longer the outbreak lasts.

“Continued targeted support to replace lost incomes will be an important factor in determining the strength of the recovery,” Brainard said, adding “apart from the course of the virus itself, the most significant downside risk to my outlook would be the failure of additional fiscal support to materialize.”

“Too little support would lead to a slower and weaker recovery. Premature withdrawal of fiscal support would risk allowing recessionary dynamics to become entrenched, holding back employment and spending, increasing scarring from extended unemployment spells, leading more businesses to shutter, and ultimately harming productive capacity,” she warned.

Economic Activity In China Expands For Second Straight Quarter

The world’s second largest economy was one of the few to avoid going into a recession as a result of the COVID-19 pandemic, and data published this week confirmed China’s — albeit mixed — rebound continues.

Real GDP grew by 4.9% in the third quarter compared to a year ago, following a 3.2% jump in Q2. GDP grew by 2.7% in Q3 from Q2.

Industrial production grew by 1.2% year on year in the first three quarters of 2020, but was down by 1.3% for the first half of the year. Activity in Q3 alone grew by 5.8% year on year, 1.4 percentage points faster than Q2.

The service sector continues to lag behind, however. Activity in the sector dropped by 2.6% year on year. In the first eight months of 2020, the business revenue of large service enterprises dropped by 2.5% year on year.

As for the contribution from domestic consumption, in the first three quarters, the total retail sales of consumer goods fell by 7.2% year on year, and only grew by 0.9% in Q3 alone — the first positive quarterly growth in 2020. In September, the total retail sales rose by 3.3% year on year, the second straight month of growth. Not surprisingly, online sales remain robust; ecommerce sales were up 15.3% in September, accounting for 24.3% of total retail sales.

U.S. Data Roundup: Stubbornly-High Unemployment, Booming Housing Market

A “considerable degree of uncertainty.” That is how the Federal Reserve’s latest survey of firms around the country summarized the mood among business owners looking ahead to the next few months.

The Beige Book reported that “banking contacts in many Districts expressed concern that delinquency rates may rise in coming months,” continued deterioration in the commercial real estate market, a “leveling off” of retail sales, and slow growth in employment — with manufacturing firms reporting new furloughs and layoffs.

The U.S. Labor Department this week reported that there were 787,000 first-time applications for state unemployment benefits processed last week, following 842,000 the prior week. There were 345,440 new claims for the federal ‘Pandemic Unemployment Assistance’ program, following 337,228 the prior week. That is over 1.1 million filing for unemployment benefits for the first time!

The number of Americans continuing to receive unemployment assistance in the week ending October 10 was 8,373,000, a decrease of 1,024,000 from the previous week’s revised level. This drop is less likely due to people finding work, and more the result of eligibility for benefits programs expiring.

The total number of unemployed receiving some form of support for the week ending October 3 was 23,150,427, compared to 1,393,973 persons claiming benefits in all programs in the same week in 2019. Of that number, 10,232,853 individuals are claiming ‘Pandemic Unemployment Assistance’ benefits and 3,296,156 individuals are claiming ‘Pandemic Emergency Unemployment Compensation’ benefits.

The Beige Book also noted in its summary the “steady demand for new and existing homes.” The Census Bureau reported this week that the number of permits granted to build private housing units jumped by 5.2% in September from August, and was 8.1% above the amount granted in September 2019. Authorizations to build single-family homes in September were up 7.8% compared to August.

Ground-breakings on new residential constuction was up 1.9%, and +11.1% vs September 2019. Single-family housing starts were 8.5% above August. As for new housing completions, that soared by 15.3% in September compared to August, and by 25.8% compared to September 2019. Single-family housing completions in September were 2.1% above the August rate.

Meanwhile the National Association of Realtors reported that existing-home sales grew for the fourth consecutive month in September — up 9.4% from the prior month and nearly 21% from one year ago.

The median home price was $311,800, up by almost 15% compared to September 2019. Total housing inventory declined from the prior month and one year ago to 1.47 million, enough to last 2.7 months — a record low — at the current sales pace.

The NAR attributed the surge in buying activity to “record-low interest rates and an abundance of buyers in the marketplace, including buyers of vacation homes given the greater flexibility to work from home.”

Brexit Update: Both Sides Return To Talks But Outlook Remains Cloudy

After missing the October 15 deadline to reach a trade agreement, representatives of the European Union and United Kingdom resumed talks this week — with some hope that a breakthrough might be around the corner.

In an address to the European Parliament this week, Michel Barnier, the EU’s chief negotiator, declared “I believe that an agreement is within reach.” He had a few caveats to add, however: “if we are prepared, on both sides, to work constructively and in a spirit of compromise; if, in the coming days, we move forward on the basis of legal texts, which is what we want to do, and, finally, if we are prepared in the days ahead to tackle and resolve the most difficult issues.”

“Time is short, very short,” Barnier warned. “We must therefore find with the British, if they are willing, solutions to the most difficult problems.”

While some “possible solutions” are emerging on some areas of disagreement, the main sticking points haven’t changed — ensuring a level playing field between EU and UK businesses, agreeing on a mechanism to enforce the trade agreement, and access to UK fishing waters.

A statement this week by Downing Street welcomed Barnier’s remarks, while also axknowledging that “significant gaps remain between our positions in the most difficult areas.”

“But we are ready, with the EU, to see if it is possible to bridge them in intensive talks,” the UK government said.

At the same time, however, both sides also warned of the possibility that talks end without an agreement.

“That is why we must also be ready to assume the consequences of a possible no deal, and must continue preparing for that scenario by the end of the year,” Barnier said.

“It is essential now that UK businesses, hauliers, and travellers prepare actively for the end of the transition period, since change is coming, whether an agreement is reached or not,” the Downing Street statement said.