Key Takeaways
- As supply chain bottlenecks limit economic activity and raise prices, we reduced our 2021 U.S. GDP forecast by 1 percentage point to 5.7% in our September forecast--though that's still a 37-year high.
- Real-time pricing data continue to highlight higher inflation, with gas prices at a seven-year high and metal prices continuing to climb in October.
- Fortunately, COVID-19 infection rates tied to the delta variant have fallen from their September highs, and the pace of vaccinations has also picked up. In line with this, mobility rates improved in most parts of the U.S., in-room dining is now only 8.6% below precrisis levels, and passenger air traffic picked up in October.
- On the jobs front, Indeed job openings reached another high on Oct. 1, and initial jobless claims fell to 293,000 in the week ended Oct. 9, the lowest level since March 14, 2020.
| Summary Of Indicators | |
|---|---|
| Indicator | How the data looks |
| Virus and mobility | |
| COVID-19 cases | Daily new cases and daily new deaths (seven-day moving averages) dropped by almost 50% and almost 25%, respectively, from their September peaks. As of Oct 12, 65% of the population has received at least one dose, while 56% is fully vaccinated. |
| Google Mobility | Mobility in the U.S. remained largely stable since May as states reopened fully. A decrease in the number of delta variant cases in the last few weeks helped mobility pick up slightly. |
| People-facing COVID-19-sensitive | |
| Open Table | Seated diners booking at restaurants as of Oct. 11 remained 9% below the comparable period in 2019. Florida and Texas are 10.6% and 13.6%, respectively, above 2019 levels. New York and Illinois are down 33.6% and 23.7%, respectively. |
| Air traffic | Passenger traffic showed an uptick after slowing in early September, as delta variant cases declined. Air traffic still is almost 23% below pre-pandemic levels. |
| Hotel occupancy | As the summer ended, the hotel occupancy rate declined to 61% (Oct. 2) from its recent peak of 71% (July 31). |
| Current and future activity | |
| Home mortgage applications | The Purchase Index gained 1.5% week over week for the week ended Oct. 8. It was down 10% compared with the same week in 2020. Rising mortgage rates and steep home price appreciation continue to weigh on overall affordability. |
| Business applications | Business applications for the week ended Oct. 2 were 2% above the 2019 average, but declined from their peak in January and continued to approach their pre-pandemic level. |
| Johnson Redbook Index | For the week ended on Oct. 8, the same-store sales index increased by 16% on a year-over-year basis (four-week moving average) and remained above its pre-COVID-19 level as consumer demand remained strong. |
| Prices | |
| Lumber futures | Lumber futures prices increased by 53% from their August low of $476/1000 board ft, a result of normalized supply and a pickup in renovation activity. Lumber price futures are still 57% below their May peak. |
| Industrial Metal Price Index | The Industrial Metal Price Index continued its upward rally and is currently 45% above the pre-pandemic level. Increased demand led by a strong economic recovery and expectations that the U.S. will pass an infrastructure bill are pushing prices higher. |
| Baltic Dry Exchange | The Baltic Dry Index remains elevated in October. The surge in the index was primarily due to the reopening of economies, which has led to a spike in demand for sea transportation as manufacturing resumes. |
| Forward inflation expectations | Medium- and long-term inflation expectations, as measured by the five- and 10-year forward rates, ticked higher through Oct. 12 and are closer to their May 2021 near-term high. |
| Labor market | |
| Initial jobless claims/continuing claims | Initial jobless claims fell to 293,000 in the week ended Oct. 9, the lowest level since March 14, 2020. This was when the pandemic just started to hit the U.S. economy. Seasonally adjusted continuing claims (in regular state programs) fell by 134,000 hitting their lowest since March 14, 2020. |
| Indeed job postings | Bureau of Labor Statistics U.S. job openings slowed in August 2021 from an all-time high in July. Indeed job postings on Oct. 1 reached another all-time high and are 45% above their pre-pandemic baseline. In contrast, recent job gains were relatively muted at 366,000 and 194,000 in August and September, respectively. |
The U.S. economy has moderated, though to a still-high pace of activity, as supply chain bottlenecks limit economic activity and raise prices, despite a huge desire to get to a post-pandemic normalcy. With this in mind, we reduced our 2021 U.S. GDP forecast by 1 percentage point to 5.7% in our September forecast, still a 37-year high (see "Economic Outlook U.S. Q4 2021: The Rocket Is Leveling Off," Sept. 23, 2021).
Fortunately, COVID-19 infection rates tied to the delta variant have fallen from their September highs, and the pace of vaccinations has also picked up, as fears over the delta variant prompted previously reluctant people to get vaccinated through early October.
Mobility rates improved in most parts of the U.S. as people continued to visit restaurants and take trips after a virus-related slowdown in August. Real-time spending data indicates that households are tired of living under quarantine and ready to put the pandemic behind them. In-room dining is now only 8.6% below precrisis levels after falling to -11.3% in the second half of September, and passenger air traffic picked up in October after September weakness. Retail sales were healthy in September, though likely tied to higher prices that households are willing to pay for the few items left on the shelves. Light vehicles sales were up 0.5% month over month in September, but in unit terms, auto sales fell for the month. And while clothing sales were up a solid 1.1% month over month, higher prices again likely explain the jump as retailers push higher costs to the consumers.
Real-time pricing data continue to highlight higher inflation across other items. Gasoline prices are at a seven-year high, and metal prices continue to march higher in October. While lumber prices remain far off their May highs, prices have moved off their mid-September low. Fortunately, the September monthly inflation reading overall was lower than the second-quarter level, from consumers' perspective.
On the jobs front, it remains a workers' market. Indeed job openings reached another high on Oct. 1, and initial jobless claims fell to 293,000 in the week ended Oct. 9, the lowest since March 14, 2020. Amid a tight market, wages surged to 4.6% in September, according to the Bureau of Labor Statistics, as businesses scramble to add people to their rosters in order to meet massive demand.
New Cases Fell As Vaccination Rates Improved
After peaking in September, new COVID-19 cases and new deaths fell sharply in October from the near-term highs of the fourth wave (see chart 1). In seven-day moving averages, daily new cases stood at 87,800 on Oct. 12, down by over 50% from the peak of 172,500 on Sept. 13. Daily new deaths per million people also fell, by 25% to 4.7 as of Oct. 12, from the peak of 6.2 on Sept. 2. The northeast of the country, where national economic activities concentrate, continued to see fewer new cases because of higher vaccination rates compared with other states (see chart 2). As of Oct. 12, 65% of the population has received at least one dose and 56% is fully vaccinated, as previously reluctant people get vaccinated.
Chart 1
Chart 2
Mobility Stabilized After A Temporary Decline Led By The Delta Surge
Thanks to the improved vaccination rates and decline in new cases, people haven't reduced outdoor activities further despite a temporary cooldown at the start of the new wave. Both the Google Community Trends and the TomTom Traffic Congestion Trends remained steady in the past month and the first two weeks of October. While the national average of Google Community Trends has hovered around 6% below its precrisis level in the past few weeks, the TomTom Traffic Trends showed that in some big cities, such as New York and Chicago, traffic has been back to 2019 levels (see charts 4-5).
Seated dinners, only 8.6% below precrisis levels as of Oct. 11, have been on the rise after the spike over Labor Day (see chart 6). The level of traveling activities came down slightly but remained steady after the end of July, with the hotel occupancy rate dropping to 4 percentage points below 2019 levels and the TSA checkpoint numbers leveling off after reaching 80% of the 2019 baseline (see charts 7-8).
Chart 3
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Chart 8
Steady Consumer Confidence Kept Spending High
A fast decline in new cases, the hot labor market, and strong household balance sheets all supported consumer confidence until the first week of October before edging down sharply last week, with the weekly Ipsos-Forbes Consumer Confidence Index falling to an eight-month low on higher inflation weighing on consumers' moods, and their purchasing power (see chart 9). Still, household spending has remained resilient in recent weeks despite higher prices. The Johnson Redbook same-store retail sales year-over-year growth rate stayed as high as 16.5% from August to early October (see chart 10). (Since the indicator returned to its 2019 level around the end of August last year, the high September and early October readings mostly reflect strong consumer demand, with base effects playing a much smaller role than before August 2021.)
Chart 9
Chart 10
Home Demand Rebounded As Homebuilders Replenished Inventories
As homebuilders replenished inventories as much as possible, home demand rebounded slightly in September, as indicated by the increasing weekly Mortgage Applications Purchase Index from the Mortgage Bankers Assn. (see chart 11). The average weekly growth rate in mortgage applications for home purchases was 2.1% in September, following an average rate of 0.6% in August and -0.2% in July. The slight rebound in home demand coincided with a small increase in lumber futures prices to $730/board feet in early October from $460/board feet in August (see chart 12).
That said, the number of home purchase-related mortgage applications was still far below its levels in the second half of 2020 and the first half of 2021. It was the same for lumber future prices, which are far below their peak of $1,600/board feet in May. We expect elevated home prices and the gradual recovery in interest rates to constrain general home demand.
Production Remained Over Precrisis Levels Amid Resilient Demand
Strong household demand is keeping producers busy. Raw steel capacity utilization stayed around 85% from August to the first week of October (see chart 13). The Weekly Economic Index, which reflects the common trends in several production indicators, also showed resilience in the past few weeks, hovering around 8% in September and early October (see chart 14). Busy U.S. suppliers supported transportation costs and raw material prices in the global market, with the Baltic Exchange Dry Index increasing from around 4,000 in early September to 5,300 as of Oct. 12 and the Industrial Metal Price Index staying around $1,500 per point since early September (see charts 15-16). The heighted raw material prices and freight costs reflect a mix of strong demand and supply constraints.
Chart 11
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Chart 16
Energy Inflation Is Up While Auto Inflation Eased
September monthly inflation continued to be lower than in the second quarter, from consumers' perspective, with the Consumer Price Index (CPI) rising only 0.4% on a month-over-month basis following a monthly advance of 0.3% in August and 0.5% in July. The Producer Price Index (PPI) for final demand rose by 0.5% in September--the second consecutive month that the pace of increase slowed. On a year-over-year basis, before seasonal adjustments, CPI jumped by 5.4% in September while PPI advanced by 8.6%. Excluding food and energy products, CPI rose by 4% over the last 12 months. Monthly inflation that's lower than in the second quarter seems to have stabilized inflation expectations over the next five years and 10 years in October (see chart 17).
Auto-related inflationary pressures continued to ease, with CPI for used cars and trucks, which rose by over 10% in June 2021, down for two consecutive months, as elevated auto prices kept discouraging demand. That said, consumers faced higher energy and food prices in September and October, with food and shelter contributing to more than half of the September advance in CPI and gasoline retail prices jumping to $3.3/gallon in the second week of October (see chart 18). The ongoing global shortage of coal and natural gas may keep crude oil and relevant energy prices high though the end of this year, sustaining inflationary pressures felt by U.S. consumers.
Chart 17
Chart 18
The Labor Shortage Is Still Salient Even After Unemployment Benefits Expired
After federal unemployment benefits ended in September, the number of initial claims dropped to the lowest level since the pandemic started, at 293,000 for the week ended Oct. 9 (see chart 19). Businesses kept creating more jobs in September and early October, with the Indeed job posting trends more than 45% above the pre-pandemic levels in the first week of October (see chart 21). That said, the number of initial claims is still 75,000 above the 2019 average, even after millions of folks went back to the labor market and job creation and business applications were faster than precrisis levels more than half a year ago (see chart 22).
Surprisingly, schools opening for in-person class and the extended federal unemployment benefits ending didn't push many workers to join the workforce. The current labor shortage could be a result of continued childcare challenges, location and skill mismatches, and an increased "reservation wage"--the minimum wage a worker would accept to work--particularly at the low end of the pay scale, led by accumulated savings during the pandemic and a premium required to expose oneself to the virus at the workplace.
Chart 19
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The views expressed here are the independent opinions of S&P Global's economics group, which is separate from, but provides forecasts and other input to, S&P Global Ratings' analysts. The economic views herein may be incorporated into S&P Global Ratings' credit ratings; however, credit ratings are determined and assigned by ratings committees, exercising analytical judgment in accordance with S&P Global Ratings' publicly available methodologies.
This report does not constitute a rating action.
| U.S. Chief Economist: | Beth Ann Bovino, New York + 1 (212) 438 1652; bethann.bovino@spglobal.com |
| U.S. Senior Economist: | Satyam Panday, New York + 1 (212) 438 6009; satyam.panday@spglobal.com |
| Contributor: | Shuyang Wu, Beijing |
| Research Contributor: | Arun Sudi, CRISIL Global Analytical Center, an S&P affiliate, Mumbai |
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