Good Riddance to the Last Data of 2020. 2021 will be Better.

Dan North | February 1, 2021
Real Personal Consumption Expenditures (PCE), which drive 70% of all economic activity, fell -0.6% in December 2020. It was the second consecutive decline as it fell -0.7% in November 2020 as well. The data was consistent with the decline in jobs in December, indicating an overall slowing in the economy which may continue into Q1 of 2021. Real Personal Disposable (after-tax) Income increased +0.2% in December after declines in five of the previous seven months. The increase was driven in part by a +2.3% boost in income provided by the $900B stimulus package passed in December. It was the first increase in government income support in seven months, just after the CARES act was passed at the end of March. Yet another large stimulus package is in the works.
Ever since March, Americans have been saving much more of their income than usual, and as a result, have built up a stockpile of approximately $1.5T in “excess” savings above what they might otherwise save. It is expected that as the weather gets warmer, and as COVID becomes more under control, consumers who have been so weighed down with the pandemic will go on a delightful spending spree. All that consumption will drive the economy and support our forecast for 2021 GDP growth of 4.1%, which outpaces the 3.3% post-WWII average and is well above the 2.3% rate from the Great Recession to COVID.
Speaking of COVID, the news is in fact getting better already. Cases in the US are down sharply, and the vaccination roll-out is speeding up. These charts are from February 1, 2021.
Daily new cases: the US is at the lowest level in two and a half months, and has declined 48% since the peak in early January.
Daily new cases per million: France is the only one creeping up
Daily new confirmed deaths: The US and the UK turning the corner
Daily new deaths per million: the UK and Sweden declining
Share of tests that are positive: only Spain is climbing. Everyone else is falling including the US and Canada
Daily doses administered. The vaccine rollout is rapidly improving in the US, rising sharply to 1.3 million per day. Canada ordered more doses per capita than any other nation, but the actual delivery of the product from the manufacturers has been slow, compounding an already hobbled effort to administer the doses.
Doses administered per 100 people – making progress with 9.4% of the population in the US having had at least 1 shot, and Canada at 2.5%
The aforementioned consumption feeds directly into the GDP calculation.  The Q4 2020 GDP report came out late January 2021, showing +4.0% q/q annualized growth, a bit worse than expectations of +4.3%. Sharp gains in both residential and non-residential business investment drove most of the growth, contributing +4.1% while consumption added +1.7%. Government spending and net exports subtracted -0.2% and -1.5% respectively. After a year of the wildest swings ever, GDP for all of 2020 shrank -3.5%, the worst year of the post-WW-II era. 

The GDP report was the last major one for 2020 – good riddance.

Q1-21 could be a bit rough, but looking forward, fewer COVID, more government stimulus, and more consumer spending will make 2021 a good year.

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