Concession stand - Capital Economics
US Economics

Concession stand

US Economics Weekly
Written by Paul Ashworth
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President Donald Trump’s failure to concede defeat more than a week after the election is unprecedented, but unlikely to trigger a constitutional crisis. What matters more over the final months of his administration is the policy actions Trump might take. That could include vetoing additional fiscal stimulus passed in the lame-duck session or triggering a Federal government shutdown in mid-December.

President Donald Trump’s failure to concede defeat more than a week after the election is unlikely to trigger a constitutional crisis. What matters more over the final months of his administration is the policy actions Trump might take. That could include vetoing additional fiscal stimulus passed in the lame-duck session or triggering a Federal government shutdown in mid-December.

Trump’s legal challenges, claiming large-scale electoral fraud, appear to be going nowhere and Joe Biden’s leads in most of the key swing states are big enough that they will survive those challenges or any mandatory recounts. Of the 27 recounts in state-wide elections over the past 20 years, only three have been successful. Moreover, the biggest shift in votes was just over 1,000, with the average closer to 200.

Ahead of the election, we had argued that if Trump failed to accept the election results, then a lot would depend on whether other senior Republicans supported his claims. As it turns out, leaders like Mitch McConnell have ridden a fine line – offering Trump limited support but, despite some of the hysterical CNN coverage of a potential coup, still reassuring that a peaceful transition of power will take place. For McConnell, claims of fraud are just a useful way of firing up Republican voters for the Senate election run-offs in Georgia.

Unless Trump can prevent the states certifying their election results in the coming weeks, which we doubt, the Electoral College will vote as scheduled on 14th December, confirming that Biden will be the next President from noon on 20th January. Republican-controlled state legislatures are not going to try to select their own electors, at least not enough states to over-turn what ended up being a convincing Electoral College victory for Biden.

What will Trump do in final weeks?

The bigger question is what policy action will Trump take in the final weeks of his administration? The early attention has focused on the possibility of more executive orders tightening up the rules on immigration and deregulation or imposing tougher sanctions on Iran or China. Those actions would have little impact on the economic outlook, not least because Biden could reverse most of them once he has his feet under the Resolute desk.

For us, the key uncertainties surround whether the out-going President would use his veto power on congressional bills to provide more stimulus or to keep the government funded beyond 11th December. Right now the chances of any additional fiscal stimulus being agreed before in the dying days of the 116th Congress are relatively low, not least because both sides believe the Georgia run-offs could swing the balance of power in the Senate their way. But if a bill did pass, we wonder whether Trump would block it, if it didn’t have the required two-thirds majority in both houses that would make it veto-proof.

While a new stimulus bill is unlikely to be agreed by Congress that soon anyway, a new continuing resolution bill does have to be passed before mid-December, to avoid the Federal government being shut down.

We think one under-appreciated near-term risk is that Trump could insist any spending bill includes more funding for the border wall or some other administration priority that House Democrats would flat-out reject. McConnell has no reason to shut the government down, because it could damage Republican chances in the Georgia run-offs, but Trump’s desire to cement his own legacy means he might come to a different conclusion.

The week ahead

We estimate that both retail sales and industrial production made further gains in October, albeit with production finally beginning to out-pace sales, which should help to alleviate some of the inventory shortage. Otherwise, further rises in coronavirus infections are likely to highlight the downside risks to the near-term outlook, while additional good news on vaccine development would reinforce a more positive outlook for next year.


Data Previews

Retail Sales (Oct.) 08.30 Tue. 17th Nov.

Forecasts

Previous

Median

Capital Economics

Retail Sales

+1.9%

+0.5%

+0.5%

Core Retail Sales (Less Autos)

+1.5%

+0.6%

+0.8%

Monthly gains likely to slow

We expect a softer 0.5% m/m rise in retail sales in October, consistent with consumption growth slowing sharply in the fourth quarter.

The strong 1.9% m/m gain in headline sales in September was driven by a 1.4% rise in underlying control group sales. That partly reflected some catch up after sales fell slightly the previous month, and it included an 11% m/m surge in clothing sales, which is unlikely to be repeated. Nevertheless, the later than usual timing of Amazon’s Prime Day is an upside risk for non-store sales in October. As a result, we are pencilling in a still-strong 0.8% m/m rise in control group sales.

Otherwise, the manufacturers’ data point to a small drop back in auto sales, while gasoline sales look to have been little changed. Food and drink services sales probably continued to rebound, but the high-frequency data suggest that recovery will soon start to reverse, as the surge in coronavirus cases prompts more states to impose new restrictions. (See Chart 1.) With full-blown lockdowns unlikely, the overall impact of the latest wave of the virus on retail sales may be limited. But it is another reason to expect consumption growth to slow in the fourth quarter.

Chart 1: Consumption Indicators (7-Day Ave., %y/y)

Sources: STR, TSA, OpenTable

Industrial Production (Oct.) 09.15 Tue. 17th Nov.

Forecasts

Previous

Median

Capital Economics

Industrial Production

-0.6%

+1.0%

+1.2%

Manufacturing Output

-0.3%

+1.1%

+1.0%

Recovery resumes, but still a long way to go

We estimate that the industrial recovery got back on track in October with a 1.2% m/m rise in production, but that would still leave the sector lagging behind the broader economic recovery.

The weekly electricity data point to a small rise in utilities output, while mining output should also have seen a further recovery, mainly due to a sharp rebound in drilling activity. The latter should have much further to run given the earlier recovery in crude oil prices.

Manufacturing output unexpectedly fell back in September, but the stronger rise in employee hours worked suggests output should have seen a decent rebound last month, which would fit with the continued improvement in the manufacturing surveys. (See Chart 2.) We expect a 1.0% m/m rise, although that would leave output 5% below its February level.

Chart 2: Manufacturing Surveys

Sources: Refinitiv, Markit

NAHB Index/Housing Starts (Oct./Nov.) 10.00/08.30 Tue. 17th/Wed. 18th Nov.

Forecasts

Previous

Consensus

Capital Economics

NAHB Index

85

85

85

Housing Starts (000s, Annualised)

1,415

1,440

1,450

Starts to rise despite fall in new home sales

Housing starts have been a bright spot during the economic recovery, and we expect that to continue in October with a rise in single-family starts to 1.15m annualised.

Admittedly, new home sales edged back in September, and they are likely to drop further over the remainder of the year. But a lack of inventory is one reason why sales have lost steam, and that will persuade builders to increase production. Indeed, the decline in the months’ supply of homes to a record low has pushed the NAHB index of homebuilder confidence to a record high. (See Chart 3.) We expect confidence held its ground at that level in November.

Multifamily starts have dropped back over the past couple of months, as rising rental vacancy rates and falling rents have weighed on developer sentiment. We expect a further small drop to 300,000 annualised in October, leaving total starts at 1.45m.

Chart 3: Months’ Supply Homes & NAHB Confidence

Source: Census Bureau


Economic Diary & Forecasts

Upcoming Events and Data Releases

Date

Release/Indicator/Event

Time EST (GMT-5)

Previous*

Median*

CE Forecasts*

Mon 16th

Empire State Manufacturing Index (Nov)

08.30

+10.5

+13.8

Tue 17th

Retail Sales (Oct)

08.30

+1.9%

+0.5%

+0.5%

Core Retail Sales (Oct)

08.30

+1.5%

+0.6%

+0.8%

Control Group Retail Sales (Oct)

08.30

+1.4%

+0.5%

+0.8%

Import Prices (Oct)

08.30

+0.3%(-1.1%)

0.0%

Industrial Production (Oct)

09.15

-0.6%

+1.0%

+1.2%

Capacity Utilisation (Oct)

09.15

71.5%

72.4%

72.6%

Manufacturing Output (Oct)

09.15

-0.3%

+1.1%

+1.0%

Business Inventories (Sep)

10.00

+0.3%

+0.5%

+0.5%

NAHB Housing Market Index (Nov)

10.00

85

85

85

Net Foreign Purchases of US Securities (Sep)

16.00

-$21.7bn

Wed 18th

Housing Starts (Oct)

08.30

1,415,000

1,440,000

1,450,000

Thu 19th

Initial Jobless Claims (w/e 14th Nov)

08.30

709,000

700,000

Philly Fed Manufacturing Index (Nov)

08.30

+32.3

+22.0

+20.0

Index of Leading Indicators (Oct)

10.00

+0.7%

+0.7%

+0.8%

Existing Home Sales (Oct)

10.00

6,540,000

6,450,000

6,500,000

Fri 20th

No Significant Data Released

Selected future data releases and events

25th Nov

GDP (Q3 2nd Est.)

08.30

Durable Goods Orders (Oct, Prov.)

08.30

Personal Income & Spending (Oct)

10.00

Fed FOMC Minutes (5th Nov Meeting)

14.00

16th Dec

Fed Policy Announcement

14.00

*m/m(y/y) unless otherwise stated

Sources: Bloomberg, Capital Economics

Main Economic & Market Forecasts

%q/q ann. (%y/y) unless stated

Q3 2020

Q4 2020

Q1 2021

Q2 2021

Q3 2021

Q4 2021

2020

2021

2022

GDP

+33.1

+4.5

+3.8

+3.9

+3.8

+3.8

(-3.5)

(+4.5)

(+3.8)

CPI Inflation

(+1.3)

(+1.4)

(+1.7)

(+3.3)

(+2.5)

(+2.4)

(+1.3)

(+2.5)

(+2.3)

Core CPI Inflation

(+1.7)

(+1.8)

(+1.9)

(+2.9)

(+2.3)

(+2.2)

(+1.8)

(+2.3)

(+2.2)

Unemp. Rate (%), Period Ave.

8.9

7.5

6.2

5.9

5.6

5.5

8.3

5.8

5.4

Fed Funds Rate, End Period (%)

0.00-0.25

0.00-0.25

0.00-0.25

0.00-0.25

0.00-0.25

0.00-0.25

0.00-0.25

0.00-0.25

0.00-0.25

10y Treas. Yld., End Period (%)

0.69

0.50

0.50

0.50

0.50

0.50

0.50

0.50

0.50

S&P 500, End Period

3363

3300

3300

3350

3400

3500

3300

3500

3750

$/€, End Period

1.18

1.20

1.20

1.20

1.20

1.20

1.20

1.20

1.20

¥/$, End Period

106

105

105

105

105

105

105

105

105

Sources: Refinitiv, Capital Economics


Paul Ashworth, Chief US Economist, paul.ashworth@capitaleconomics.com