Martin Fleming’s Blog
US Consumers Retract in 4Q
Unnoticed in last week’s US 4Q data was the continued weakness in the consumer and government sectors. While the US business sector continues to recover from the SARS-CoV-19 collapse, other than residential construction and home repair, consumer and government spending appears exceedingly weak.
Half the 4Q 4.0% GDP increase was driven by consumer spending on healthcare. Without the health-related increases, personal consumption expenditure would have been unchanged from 3Q and the 4Q GDP increase would have been reduced to 2.2%. The very large 4Q increase in healthcare spending, from both for-profit providers and nonprofit organizations, appears to be, at least in part, driven by the pandemic.
Apparently bouncing back from last year’s shut downs, outpatient services experienced a strong rebound, returning to the levels of late 2019 and early 2020. Physician’s services and dental visits along with hospital and nursing home spending have all returned to prior levels. Such a rebound is not necessarily new consumer spending growth.*
A small, but still interesting piece of the 4Q health care spending increase, is the substantial increase in social services and client advocacy spending. It would not surprising that some of the 26M Americans suffering from COVID-19 – especially the elderly – have needed the services of advocates for their care. Further, many Americans – whether having contracted the disease or not – have been in need of mental health care.
With consumer spending outside healthcare spending flat, it was not surprising to see Friday’s report that personal saving in December rose to exceed October’s level and for 4Q personal saving to reach an astounding 13.4% of disposable personal income. With consumers remaining extremely cautious, both in mobility and spending, Friday’s report from the University of Michigan’s Consumer Sentiment survey of the fall in December sentiment was not surprising. Both the current conditions component and the future expectations component declined.
With this week’s employment report likely to show further January weakness, US growth enters 2021 on a very weak foundation. Adding to the weakness was the slowdown in federal, state and local 4Q spending. While much of the recent COVID relief has been in the form of aid to households and businesses, during a period in which relief and support are required, the government sector might have been expected to maintain its pace of spending growth.
* It remains a bit of a mystery as to why, with so many suffering from COVID-19, hospital spending fell so much through the middle of 2020. It is true that elective surgery was dramatically curtailed – if not completely eliminated. However, with nearly 800,000 COVID-19 hospital admissions over the past year, the expectation is that hospital spending might have increased not decreased, with capacity constraints necessitating the postponement of elective surgery. Anecdotal evidence suggests a large cadre of dedicated healthcare workers have been working very long hours to care for those suffering with the disease. Some have speculated that COVID-19 treatment is a low-value treatment when compared with elective procedures and, thus, spending falls. It could also be that there are significant reimbursement issues with insurance carriers expecting government assistance, thus, slowing hospital reimbursement, and clouding the data.
Consumers are Eager to Spend While Manufacturers are Struggling
US consumers are eager to spend but manufacturers are struggling to respond. The 1.9% m/m September retail sales increase hides e-commerce capacity constraints. With the economy’s supply side struggling to find healthy workers, reinvigorate the global supply chain, and transform to a new world, industrial output fell 0.6% in September.
https://wordpress.com/post/martinflemingdotblog.wordpress.com/136
Policy Punchline Podcast on the Post-Pandemic Era
“My punchline is that we’re very likely to see very dramatic policy change and transformation over the course of the next several years….That’s part of what we’re seeing in the streets today…. [T]he people are singing in the streets, and there is now enormous pressure for change. What we’re seeing in America this summer might be akin to the French revolution.”
https://wordpress.com/read/feeds/107597804/posts/2895705714
Policy Punchline podcast on Digital Currencies
“My punchline is that the Chinese are going to push hard over the course of the next couple of years. There’s a bit of a war here between maintaining the advantage that the U.S. has with the global currency and other nations trying to take advantage of the inefficiencies that exist and, shall we say, supplant the dollar.”
https://wordpress.com/read/feeds/107597804/posts/2895711311
Policy Punchline podcast on AI and Automation
“My punchline is we may be only four or five percent of the way down a path that’s going to take 20 or 30 years for us to fully take advantage of the capabilities. The notion that artificial intelligence is about to take over the world is nonsense. It really misses the challenge and the difficulty that organizations face in deploying these kinds of solutions.”
https://wordpress.com/read/feeds/107597804/posts/2895708375
Banks, Helped in the Crisis, Face Substantial Future Challenges
Profits at US banks have tumbled, their share prices are underperforming, and their leaders sound grim. However, long-term investors have found new sources of optimism. Compared with the overall equities market, bank shares have traded at lower multiples since the financial crisis. They have been punished as if investors expect any economic trouble to expose underlying problems.
Conversely, investors have run to stocks such as Amazon, Netflix, Apple and Microsoft, who have all benefited from social distancing and stay-at-home orders.
https://martinflemingdotblog.wordpress.com/2020/08/10/now-is-not-the-time-for-false-austerity/
Now Is Not the Time for False Austerity
The president and congress are about to lose their starring economic policy role with a repeat of the unforced errors committed in 2011when Mark Meadows’ Tea Party drove a sharp switch to austerity. The result was an 9-year journey back to full employment.
With Very Targeted Job Gains Unemployment Falls
At 10.2% in July, the unemployment rate remains painfully high. With 16.3M workers unemployed – available, looking for work & receiving unemployment benefits – and 14.3M receiving special pandemic benefits, 31M workers remain idle. However, there is good news with targeted gains.
https://wordpress.com/post/martinflemingdotblog.wordpress.com/143
The Surprises Hidden in the 2Q GDP Data
The 32.9% GDP 2Q decline was hardly surprising. Many of us forecast such a decline at the outset of the quarter. There are, however, two aspects of today’s report that are surprising.
https://martinflemingdotblog.wordpress.com/2020/07/30/the-surprises-hidden-in-the-2q-gdp-data/
Avoiding Future Public Health Disasters
The profound failure of much of the world’s public health infrastructure during the coronavirus pandemic has resulted in the loss of tens of millions of jobs and untold financial losses for both families and businesses.
https://martinflemingdotblog.wordpress.com/2020/07/27/avoiding-future-public-health-disasters/
A New World in the Past-Pandemic Era
The continuing spread of the US wildfire that is COVID-19 has done nothing except strengthen the pressure for change and transformation. The possibility of three or four years of disrupted and destroyed family, personal, household, and business activity will almost surely have long-term consequences. The scare will persist.
https://martinflemingdotblog.wordpress.com/2020/07/19/a-new-world-in-the-post-pandemic-era/
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