Light week for economic data; Texas manufacturing expanding at faster pace

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The economic indicators to close out the year are relatively light, Wednesday being the busiest day of the week with initial jobless claims being the highlight.

With sparse economic data available, market participants will likely be focused on news from Washington and the continued effects of COVID-19, according to the economists at Deutsche Bank.

“Any news coming from Washington has been upended by President Trump’s last-minute surprise disapproval of many aspects of the stimulus and associated omnibus spending bill,” the DB economist team wrote in a recent commentary. “The stimulus as currently tallied is about $900 billion, with about $325 billion in small business aid, an extension of federal unemployment benefit programs plus an additional $300 per week benefit, as well as $600 per person stimulus payments, just to name a few.”

They have factored this into their gross domestic product forecast, which they now see rising 4.3% from Q4 2020 to Q4 2021.

“As to the data, jobless claims on Thursday will likely be the highlight of the week, though ever-present issues seasonally adjusting the data around the holidays present some scope for potential volatility,” they wrote.

The economists at DB expect initial claims to come in around 770,000, compared to last week’s figure of 803,000.

“We do expect initial claims to improve some, however, the correlation between the change in claims and the growth in COVID cases across states remains high, suggesting that until fiscal stimulus actually begins to land in households’ pockets, the spread of the virus remains the primary determinant of any recovery in the labor market and will likely weigh on job gains in the December employment report.”

Other data released on Wednesday are “relatively minor” and “largely serve to sharpen forecasters’ estimates of current-quarter GDP growth,” according to the DB economists.

The other releases scheduled for Wednesday are advanced economic indicators, Chicago PMI and pending home sales index.

“Despite the dip in goods consumption in the November data, demand for goods remains elevated and should serve to drive the advanced goods trade balance (negative $82 billion vs negative $80.3 billion) slightly wider,” they wrote. “We do expect pending home sales to continue to edge lower as the COVID-related surge in housing activity earlier in the year continues to fade. Finally, given the surge in COVID cases, we expect the Chicago PMI to dip some, mirroring the similar weakness that we have seen in the consumer sentiment data.”

Dallas Fed Texas manufacturing
Manufacturing activity in the Texas region is “expanding at a faster pace,” according to the Federal Reserve Bank of Dallas’ manufacturing sector survey, released on Monday.

Current conditions for the general business activity slipped to 9.7 in December from 12.0 in November, while the company outlook index gained to 16.8 from 11.0.

Production jumped to 25.5 from 7.2, while capacity utilization rose to 17.7 from 6.9 and new orders increased to 17.8 from 7.2. Shipments climbed to 21.9 from 13.7 and wages and benefits grew to 19.1 from 13.6.

The outlook uncertainty index rose to 13.4 from 7.2.

The six-months forward-looking general business activity index slipped to 17.6 from 25.8, while the forward-looking company outlook index rose to 24.1 in December from 22.5 in November.

The forward-looking production index gained to 47.3 from 40.8, while the six-months-ahead capacity utilization index climbed to 42.9 from 36.2 and the future new orders index dipped to 38.8 from 43.2.

Ed Moya, senior market analyst at OANDA.

"The Dallas Fed manufacturing survey confirmed the slowdown that has been shown with the other regional surveys," according to Ed Moya, senior market analyst at OANDA. "The short-term pain of the current wave of the virus is weighing on future general business activity index, but that should improve once we are beyond the winter wave of COVID."

According to Scott Anderson, economists at Bank of the West, the Headline reading fell in-line with their forecasts to a four-month low in December, but the details of the Dallas Fed Manufacturing report were "stronger than the headline and better than expected."

"Many components improved compared to November, including company outlook, production, capacity utilization, new orders, growth of orders, prices paid, wages and employment," Anderson said.

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Federal Reserve Bank of Dallas Manufacturing industry Economic indicators