The Weekly Briefing - February 1st, 2021

The Weekly Briefing – February 1st, 2021

In This Week’s Brief:

  • GDP Growth Cooled Last Quarter as Consumers Reined in Spending
  • Fed Officials Leave Interest Rates Unchanged, Keep an Eye on Vaccine Rollout
  • Single-Family Home Prices Picked up Steam Last Year, Especially in the Final Quarter

GDP Growth Cooled Last Quarter as Consumers Reined in Spending

U.S. Real GDP growth slowed last quarter as widely expected to an annualized rate of 4.0%. Though modestly robust for an economic recovery, these figures come in the context of 3Q20’s record-shattering 33.4% annualized pace of growth when many sectors of the economy hit the accelerator as officials lifted business restrictions. Total economic activity during the quarter finished 2.5% below one-year-prior figures, indicating that there is more to be done to fully recover from the pandemic-induced shutdown.

Consumer spending, which accounts for more than two-thirds of the economy, tightened over the past two months, weighing on last quarter’s headline growth figure. Household expenditures declined 0.2% last month after falling 0.7% the month before. Spending on both durable and nondurable goods bore the brunt of last month’s decline, while the services sector nearly held steady.

An uplift in household income last month due to higher wages and the year-end stimulus could support spending in early 2021, but consumers are likely to remain hesitant regarding nonessential purchases. Consumer sentiment indices are split about the overall health of U.S. consumers. After improving 2.2 points this month, consumer confidence still stands well below pre-pandemic levels, and the present conditions component is showing new weakness, especially in California. Meanwhile, the Univ. of Michigan’s consumer sentiment index edged down 1.7 points this month to 79.0.

Real GDP (Trillions) & Annualized Real GDP Growth


Fed Officials Leave Interest Rates Unchanged, Keep an Eye on Vaccine Rollout

Federal Reserve officials maintained course last week as they held interest rates unchanged at 0.25% and emphasized that the central bank’s asset purchasing program would continue. In their statement, the Federal Open Market Committee (FOMC) noted that the pace of recovery had “moderated in recent months” but also made clear that challenges were concentrated in a few sectors.

The FOMC continued to stress that the strength of the recovery will depend on containing the virus, including the vaccination campaign. The vaccine rollout has proceeded more slowly than anticipated, but new coronavirus case counts have dropped sharply by a third over the past two weeks. The number of daily cases now stands at 48.5 per 100,000 people, the lowest level since November, according to Opportunity Insights data.

Worldwide, major central banks continue to maintain accommodative policy stances. The European Central Bank and Bank of Japan have left interest rates at zero and below zero respectively since before the pandemic. The Bank of Canada has pegged rates at 0.25% for several months after slashing them last spring, and the Bank of England has held rates at 0.1% since early 2020, the lowest level in more than a decade.

Major Central Bank Base Interest Rates


Single-Family Home Prices Picked up Steam Last Year, Especially in the Final Quarter

The sales price for a typical single-family home in the U.S. jumped 8.5% last year to $265,000, the fastest pace of growth since the run-up that preceded the GFC, according to Zillow data. The price gains were widespread as the 50 largest markets all saw home prices rise 6.0% or more. San Jose, Phoenix, Salt Lake, and Seattle led the way with prices up at least 13.0%.

It remains unclear how long the rapid price growth can be sustained. Many would-be homebuyers are likely getting priced out of the market despite record-low mortgage rates, which could dampen demand. In addition, every major market except Dallas, San Francisco, and Las Vegas saw above-trend price growth last year, suggesting the potential for pullback to long-run averages.

Pricing momentum showed no signs of slowing, however, as the year closed. Zillow reports that the strongest seasonally adjusted month-on-month price growth last year took place during 4Q20.

Single-Family Sales Price Growth: 50 Largest Markets

 

 

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