3 Worrisome Headlines, Put Into Perspective

It is perfectly understandable that many business leaders are hesitant about their prospects in 2021, as it feels in most ways that we are not yet done with 2020 and all that the year laid at our feet. There is no lack of worrisome headlines and "bad news" to grab our attention. We will look at three worrisome headlines and put them into perspective.

Existing Home Sales fell in November.

Yes, Existing Home Sales did move lower in November from the October 14-plus-year high, but is that a sign of a growing softness in the housing market, as some suggest?

The answer is no, it does not signal softness; a decline in November is a normal seasonal move. November came in 2.48% below October, a little steeper than the seven-year average of -2.0% and steeper than the average of the last four years. That is hardly surprising, given that the September-to-October increase was almost three times steeper than normal. A pause in the rising trend is normal. A normal decline in December Existing Home Sales will keep the 3MMT flat at the highest level in over 10 years, which is not a reason for consternation or concern.

Retail Sales fell in December – or did they?

Numerous news sources agreed on the headline, and several indicated that it signaled a troublesome cutback in consumer spending.

The WSJ had an article that quoted an economist who called December retail sales “an absolute disaster.”

The Hill stated, “December retail sales fell 0.7 percent, adding to the growing list of data points showing the economic recovery stalling or even slipping into reverse.”

These articles certainly engendered concern. The reality is remarkably different, as readers of our ITR Trends Report™ and ITR Insider™ are well aware. December saw consumer spending reach record highs on a monthly basis and on a 3MMT basis. The November-to-December increase in the monthly data was steeper than in the last three years, and the 3MMT seasonal rise was the steepest since 1999.

The difference between the published reports and ITR is that we use data that is not seasonally adjusted (NSA). Using the NSA data removes an artificial and unneeded adjustment and leaves us with results.

Employment declined in December.

It would be easy to take a headline about a decline in jobs in December and equate that to caution for your business in 2021. However, reality is once again much different.

US Private Sector Employment did decline 0.11% from November to December, with a reduction of 135,000 in employment. Context can help a lot, and in this case it is important to note two salient factors. One is that it is normal for jobs to move lower in December, as they have in seven of the last 10 years. The average decline over the last 10 years is 0.079%.

Second, the leisure and hospitality industry recorded a loss of 513,000 jobs for the month, of which 393,000 were in restaurants . It is no surprise that leisure and hospitality suffered a decline given the COVID-caused modified business activity in several states. Absent the job losses in leisure and hospitality, there were job gains of 378,000 in the other segments of the economy, which is welcomed news in terms of economic growth in most industries. It also means the tight labor market in most industries is going to continue through 2021 as the economy expands.

Other encouraging input can be seen in the private sector labor figures in that 9.475 million jobs have returned since the June 2020 3MMA low; that is 62.8% of the jobs lost in the COVID-led 2Q20 drop in private sector employment. That is an incredibly fast 8.4% gain in employment since the June 2020 low. The post-Great Recession gain was 2.9% through the same time period. The current gain is the sharpest since the early 1950s . The return of jobs and the rate of rise speak to the underlying strength in the US economy.

The reality - economic expansion in 2021.

The above facts, and many more, point to a solid year of economic expansion in the US in 2021. We encourage you to act on that information and budget for rise if you are positively correlated to the economy. Use our rate-of-change methodology and determine how you fit into the economy and which leading indicators you can rely on. I promise you it will give you a much more reliable view of your future than you will get from selected data points and headlines.

Alan Beaulieu
President