Month-In-Review: August 2020

A number of the latest economic readings including those of manufacturing, employment and housing suggested the U.S. economy – or at least pockets of the economy – continued to recover despite an ongoing drag from the spread of COVID-19. Modest steps in the right direction, however, still leaves a considerable amount of ground to recapture relative to pre-pandemic levels. Tens of millions of Americans, furthermore, remain out of work, keeping pressure on leaders in Washington to pass the next round pandemic aid package; disagreement over the size and scope left negotiations broken down mid-month, prompting President Trump to extend emergency support through executive orders. Meanwhile, with monetary policy already at the lower zero-bound, Chairman Powell ended the Fed’s decades-long practice of inflation targeting, implying a willingness to let prices run hot, at least temporarily, and perpetuating the likely timeline for rates to remain at zero.

Market Activity and Commodities

·      Equities – Equities ended August higher, marking the fifth consecutive month of gains and the biggest monthly gain since April. Beginning at 3,271.12, the S&P 500 advanced 7.0% in August, closing at 3,500.31 after closing at an all-time high of 3,508.01 on the 28th. The Dow, meanwhile, gained 7.6% in the second month of Q3 from 26,428.32 to 28,430.05. For the year, the S&P 500 is up 8.3%, while the Dow is down 0.4%.

·      Treasuries – Treasury yields ended the month of August higher after ending lower in the month of July. The 10-yr Treasury yield rose 18bps from 0.53% to 0.71% in the second month of Q3 after hitting an all-time low of 0.51% on the 4th. The 2-yr Treasury yield, meanwhile, increased 2bps in August, closing at 0.13%. Since the start of 2020, the 2-yr dropped 144bps and the 10-year declined 121bps.

·      Oil     

o  (Aug 12) – In its monthly report, OPEC noted that oil demand will fall by 9.06 million barrels per day (bpd) this year, more than the 8.95 million bpd decline expected a month ago as the coronavirus continues to curtail travel and economic activity. Following the report, oil traded up 2.5% at $42.67 a barrel.

National Growth and Outlook

·      NFIB Small Business Optimism (Aug 11) – The NFIB Small Business Optimism Index declined from 100.6 to a reading of 98.8 in June, more than the expected decline to 100.5, according to Bloomberg, and a two-month low.

·      Leading Index (Aug 20) – The Leading Index rose 1.4% in July, more than the 1.1% rise expected, according to Bloomberg, and following a 3.0% gain in June, revised up from 2.0% originally reported.

·      Chicago Fed National Activity Index (Aug 24) – The Chicago Fed National Activity Index declined from an all-time high of 5.33 to a reading of 1.18 in July, more than the expected fall to 3.70, according to Bloomberg, and a three-month low. The Chicago Fed National Index draws on 85 economic indicators; a reading below zero indicates below-trend growth in the national economy and a sign of easing pressures on future inflation. In July, 56 of the 85 monthly individual indicators made positive contributions, while 29 made negative contributions.

·      GDP (Aug 27) – GDP was revised up from a 32.9% drop to a 31.7% decline in the second quarter, still the largest decline on record and following a 5.0% drop in Q1. According to Bloomberg, GDP was expected to be revised up to a 32.5% decline in Q2. In the details, personal consumption was revised up from a 34.6% decline to a 34.1% drop in the second-round Q2 report, still the largest quarterly decline on record. Goods consumption was revised higher from an 11.3% decline to a 10.6% fall, thanks to upward revisions in durable and nondurable goods orders; durable goods orders were revised up a tenth of a percentage point to a 1.3% decline, the second consecutive quarter of decline, and nondurable goods orders were revised up 1 percentage point to a 14.9% drop. Services consumption was also revised higher from a 43.5% drop to a 43.1% decline in Q2, marking the second consecutive quarter of decline. Gross private investment was revised up from a 49.0% decline to a 46.2% drop, the third consecutive quarter of decline, thanks to a $286.4B decline in inventories, revised higher from the $315.5B decline originally reported. Fixed investment was revised up 1 percentage point to a 28.9% decline in the second-round Q2 report, following a 1.4% decline the quarter prior. Nonresidential investment, including office buildings and factories, was also revised up a percentage point to a 26.0% drop, due to upward revisions in structures and equipment investment. Structures investment was revised higher from a 34.9% decline to a 33.4% drop, and equipment investment was revised up from a 37.7% drop to a 35.9% fall. Intellectual property investment, however, was revised down from a 7.2% decline to a 7.7% drop. Additionally, residential investment was revised up from a 38.7% decline to a 37.9% drop in the second quarter, the largest drop since the third quarter of 1980. On the trade side, exports were revised up from a 64.1% drop to a 63.2% decline, while imports were revised down from a 53.4% decline to a 54.0% drop, the third consecutive quarter of decline. Finally, government consumption was revised up a tenth of a percentage point to a 2.8% rise in second-round Q2 report, a one-year high. Federal spending increased from a 17.4% rise to a 17.6% gain, due to a 40.1% gain in nondefense spending, revised up from the 39.7% increase originally reported, and a 4.2% increase in national defense spending, revised up a tenth of a percentage point. State and local spending, meanwhile, was revised up from a 5.6% decline to a 5.5% fall in Q2.

Employment

·      Jobless Claims

o  (Aug 6) – Initial jobless claims totaled 1.2M in the week ending August 1, well below the 1.4M expected, according to Bloomberg, and the lowest level since early March. A total of 55.3M applications for unemployment insurance had been filed over the past twenty weeks. Continuing claims, the total number of Americans claiming ongoing unemployment benefits, meanwhile, fell by 844k to 16.1M.

o  (Aug 13) – Initial jobless claims fell by 228k to 963k in the week ending August 8, the first time below 1M since March 14. According to Bloomberg, jobless claims were expected to total 1.1M. A total of 56.3M applications for unemployment insurance had been filed over the past twenty-one weeks. Continuing claims, meanwhile, decreased by 604k to 15.5M, the lowest since early April.

o  (Aug 20) – Initial jobless claims unexpectedly rose by 135K to 1.1M in the week ending August 15. Additionally, jobless claims for the previous week were revised higher by 8K to 971K. According to Bloomberg, jobless claims were expected to total 920K in the week ending August 15. A total of 57.4M applications for unemployment insurance had been filed over the past twenty-two weeks. Continuing claims, however, decreased by 636K to 14.84M.

o  (Aug 27) – Initial jobless claims totaled 1.0M in the week ending August 22, as expected according to Bloomberg, and following a total of 1.1M the week prior. A total of 58.4M applications for unemployment insurance had been filed over the past twenty-three weeks. Continuing claims, meanwhile, decreased from 14.76M to 14.54M.

·      Nonfarm Payrolls (Aug 7) – Nonfarm payrolls rose 1.76M in July, more than the 1.50M gain expected according to Bloomberg. June payrolls, however, were revised slightly lower from a 4.80M rise to a 4.79M increase, while May payrolls were revised up from a 2.70M gain to a 2.73M increase. Thus, the overall change in nonfarm payrolls (July data + net revisions) was 1.78M. Employers added 9.3M jobs in May, June and July combined, as many states lifted lockdown restrictions on businesses. However, the 9.3M gain still only partly offsets the 22.2M jobs lost in March and April. In the details, private payrolls rose by 1.5M in July, following a 4.7M gain in June. Goods-producing payrolls rose 39K due to a 20K gain in construction payrolls. Manufacturing payrolls, meanwhile, rose 26K in July, following a 357K rise in June. Service producing payrolls gained by 1.4M in July, following a 4.2M rise the month prior. Education and health payrolls rose 215K, and business services payrolls gained 170K, due to a 144K rise in temporary help payrolls. Additionally, leisure and hospitality payrolls surged by 592K, financial payrolls gained 21K, and trade and transport payrolls popped 291K, due to a 258K rise in retail payrolls at the start of Q3. Information payrolls, however, dropped 15K in July, following a 10K rise in June. Government payrolls, meanwhile, rose 301K in July with federal employment rising 27K.

·      Participation Rate (Aug 7) – The civilian labor force declined by 62K, following a 1.7M rise in June. As a result, the participation rate declined slightly from 61.5% to 61.4% at the start of the third quarter, a two-month low.

·      Unemployment Rate (Jul 2) – Household employment rose by 1.4M in July, following a 4.9M rise the month prior. With a 62K decline in the labor force, the unemployment rate dropped from 11.1% to 10.2% in July, still historically high.

·      Average Hourly Earnings (Aug 7) – Average hourly earnings rose 0.2% in July, less than the 0.5% gain expected, according to Bloomberg, and following a record 1.3% drop in June. Year-over-year, wages rose 4.8%, a four-month low.

·      Average Weekly Hours (Aug 7) – The average workweek declined from 34.6 to 34.5 hours in July, a three-month low.

·      JOLTS (Aug 10) – According to JOLTS – the Job Openings and Labor Turnover Survey – the number of job openings unexpectedly rose from 5.37M, revised down from 5.40M, to 5.89M in June, a three-month high.

Consumer Activity and Confidence

·      Vehicle Sales (Aug 3) – Total vehicle sales rose from 13.05m to a 14.52m unit pace in July, more than the rise to 14.00m expected, according to Bloomberg, and a five-month high. Year-over-year, vehicle sales dropped 13.7% following a 24.1% decline in June, and marking the fifth consecutive month of decline.

·      Consumer Credit (Aug 7) – Consumer credit rose $8.95 billion in June, a four-month high and following an upwardly revised $14.38 billion drop in May. According to Bloomberg, consumer credit was expected to rise $10.00 billion at the end of Q2.

·      University of Michigan Consumer Sentiment

o  (Aug 14) – The University of Michigan Consumer Sentiment Index unexpectedly rose from 72.5 to 72.8 in the preliminary August report, a two-month high. According to Bloomberg, the index was expected to decline to a reading of 72.0. In the details, consumer expectations rose from 65.9 to a reading of 66.5, while consumers’ view of current conditions fell from 82.8 to a reading of 82.5, a three-month low.

o  (Aug 28) – The University of Michigan Consumer Sentiment Index unexpectedly increased from a preliminary report of 72.8 to a final reading of 74.1 in August, a two-month high. According to Bloomberg, the index was expected to remain unchanged at 72.8. In the details, consumers’ assessment of current conditions rose from 84.5 to 82.9, and consumer expectations gained 2 points to 68.5 in the final August report, a two-month high.

·      Retail Sales (Aug 14) – Retail sales rose 1.2% in July, less than the 2.1% increase expected according to Bloomberg. July’s rise marked the third consecutive month of an increase, however, the 1.2% gain was a slowdown from the more rapid pace seen in May (18.2%) and June (8.4%). Year-over-year, retail sales rose 2.7% in July, a five-month high, and following a 2.1% gain in June. Car sales fell 1.2% in July following a 9.1% gain the month prior, and gasoline stations sales gained 6.2%, following a 14.8% increase the month prior. Excluding autos, retail sales rose 1.9% in July, and also rose 1.9% over the past 12 months. Excluding autos and gasoline, retail sales increased 1.5% in July and rose 3.9% year-over-year. In the details, clothing sales rose 5.7%, electronics sales popped 22.9%, and health and personal care sales rose 3.6%. Also, eating and drinking sales improved 5.0%, food and beverage sales rose 0.2%, and miscellaneous sales gained 6.2% at the start of Q3. Additionally, non-store retailer sales rose 0.7% in July, a two-month high. On the weaker side, furniture sales were flat, while building materials sales fell 2.9%, sporting goods sales declined 5.0%, and general merchandise sales dropped 0.2%, despite a 0.1% gain in department store sales.

·      Consumer Confidence (Aug 25) – The Conference Board’s Consumer Confidence Index unexpectedly dropped from 91.7, revised down from 92.6, to a reading of 84.8 in August, the lowest level in six years. According to Bloomberg, the index was expected to rise to a reading of 93.0 in August. In the details, consumer expectations fell 3.7 points to 85.2, and present situation declined 11.7 points to 84.2, a three-month low.

Inflation

·      PPI (Aug 11) – The PPI rose 0.6% in July, double the rise expected, according to Bloomberg, and the most since October 2018. Year-over-year, however, producer prices fell 0.4% in July, the fourth consecutive month of decline. Food prices declined 0.5% following a 5.2% drop in June, while energy prices gained 5.3% at the start of Q3 following a 7.7% increase the month prior. Excluding food and energy costs, the core PPI rose 0.5%, the largest gain since October 2018, and increased 0.3% over the past 12 months. Additionally, services costs rose 0.5%, due to a 0.8% gain in trade costs and a 0.4% increase in other costs. Transportation and warehousing costs, however, fell 0.8% in July following a 0.9% gain in June.

·      CPI (Aug 12) – The CPI rose 0.6% in July, double the rise expected, according to Bloomberg, and following a similar gain in June. Year-over-year, consumer prices rose 1.0% at the start of Q3, up from 0.6% in June, and a four-month high. Food prices declined 0.4%, following a 0.6% gain the month prior, while energy prices rose 2.5% in July, following a 5.1% gain in June. Excluding food and energy costs, the core CPI rose 0.6%, the most in almost three decades, and increased 1.6% over the past 12 months, a four-month high. In the details, transportation prices gained 2.9%, apparel prices rose 1.1%, medical care prices increased 0.4%, and commodities prices rose 0.6%. Additionally, housing prices increased 0.3%, thanks to a 0.2% gain in the OER, and education and communication costs increased 1.1%, despite a 1.0% drop in personal computer prices. On the weaker side, recreation prices dropped 0.6% in July following a similar decline in June.

·      PCE (Aug 28) – The PCE rose 0.3% in July, a tenth of a percentage point less than expected, according to Bloomberg, and following a 0.5% gain in June. Year-over-year, headline inflation increased 1.0%, a four-month high. Excluding food and energy, the core PCE rose 0.3% in July following a similar rise in June. Year-over-year, core inflation increased 1.3%, a four-month high.

Manufacturing and Production Activity

·      ISM Manufacturing (Aug 3) – The ISM Manufacturing Index rose from 52.6 to a reading of 54.2 in July, more than the rise to 53.6 expected, according to Bloomberg, and the highest reading since March 2019. In the details, backlog of orders rose from 45.3 to 51.8, employment increased from 42.1 to 44.3, and new orders improved from 56.4 to 61.5, the highest since September 2018. Also, prices paid rose from 51.3 to 53.2, and production increased from 57.3 to 62.1, the highest since August 2018. Additionally, exports gained from 47.6 to a reading of 50.4, and imports rose from 48.8 to 53.1 in July. On the weaker side, supplier deliveries fell from 56.9 to 55.8, a six-month low.

·      ISM Services (Jul 6) – The ISM Services Index unexpectedly rose one point from 57.1 to a reading of 58.1 in July, the highest reading since February 2019. According to Bloomberg, the services index was expected to decline to a reading of 55.0 at the start of Q3. In the details, new orders rose from 61.6 to a record high of 67.7, and backlog of orders increased four points to 55.9 in July, a thirteen-month high. On the weaker side, prices paid declined from 62.4 to 57.6, supplier deliveries fell from 57.5 to 55.2, and employment dropped one point to 42.1, a two-month low. Additionally, imports fell from 52.9 to 46.3, and exports declined from 58.9 to 49.3 in July, a two-month low.

·      Industrial Production (Aug 15) – Industrial production rose 3.0% in July, as expected, according to Bloomberg, and following a 5.7% gain in June, the largest gain since 1959.

·      Capacity Utilization (Aug 15) – Capacity utilization rose from 68.5% to 70.6% in July, a four-month high. According to Bloomberg, capacity utilization was expected to increase to 70.3% at the start of Q3.

·      Empire Manufacturing (Aug 17) – The Empire Manufacturing Index dropped from 17.2 to a reading of 3.7 in August, more than the expected decline to a reading of 15.0, according to Bloomberg, and a two-month low. In the details, prices paid rose from +14.9 to +16.0, and employment improved two points to +2.4 in August, a six-month high. On the weaker side, shipments fell from +18.5 to +6.7, new orders decreased from +13.9 to -1.7, and the average workweek declined from -2.6 to a reading of -6.8.

·      Philly Fed Business Outlook Survey (Aug 20) – The Philly Fed Index declined from 24.1 to a reading of 17.2 in August, more than the decline to 20.8 expected, according to Bloomberg, and a three-month low. In the details, delivery time gained from -6.4 to +7.3, and inventories rose from -11.8 to -1.9. On the weaker side, new orders fell 5 points to +19.0, prices paid declined from +15.7 to +15.3, and employment decreased from +20.1 to a reading of +9.0, a two-month low. Also, shipments declined from +15.3 to +9.4 in August, a three-month low.

·      Richmond Fed Manufacturing (Aug 25) – The Richmond Fed Index rose from 10 to a reading of 18 in August, the highest level since October 2018. According to Bloomberg, the index was expected to remain unchanged at a reading of 10 in August.

·      Durable Goods (Aug 26) – Durable goods orders jumped 11.2% in July, exceeding the 4.5% rise expected, according to Bloomberg, and marking the third consecutive month of a positive reading. June orders, meanwhile, were revised up a tenth of a percentage point to a 7.7% increase. Year-over-year, however, headline orders fell 5.0% at the start of Q3, the fifth consecutive month of decline. Transportation orders gained 35.6%, following a 19.7% increase the month prior, thanks to a 21.9% increase in vehicles and parts orders. Excluding transportation, durable goods orders rose 2.4% in July and declined 0.9% over the past 12 months. In other details, fabricated metals orders increased 2.0%, electrical equipment orders rose 4.1%, and computers and electronics orders gained 2.2%. Additionally, primary metals orders rose 0.2%, and machinery orders increased 2.0% in July.

·      Capital Goods (Aug 26) – Capital goods orders rose 13.6% in July. Nondefense capital goods orders, meanwhile, increased 10.2% at the start of Q3, following a 15.5% decline in June. Capital goods orders excluding aircraft and defense – a proxy for business investment – rose 1.9% in July, down from the 4.3% gain the month prior. Year-over-year, however, business investment was flat.

·      Kansas City Fed Manufacturing (Aug 27) – The Kansas City Fed Index jumped from 3 to a reading of 14 in July, more than the rise to 5 expected, according to Bloomberg, and the highest reading since November 2018.

·      Chicago PMI (Aug 28) – The Chicago PMI unexpectedly fell from 51.9 to a reading of 51.2 in August, a two-month low, albeit still above 50.0, indicating expansion. According to Bloomberg, the index was expected to rise to 52.6 in the second month of Q3. In the details, new orders, supplier deliveries and production saw gains, while order backlogs declined.

·      Dallas Fed Manufacturing (Aug 31) – The Dallas Fed Manufacturing Outlook Index unexpectedly rose from -3.0 to a reading of +8.0 in August, up from the all-time low of -74.0 in April and the highest reading since February 2019. According to Bloomberg, the index was expected to rise to 0.0 in the second month of Q3.

Housing Market Activity

·      Construction Spending (Aug 3) – Construction spending unexpectedly dropped 0.7% in June, marking the fourth consecutive month of decline. According to Bloomberg, construction spending was expected to rise 1.0% at the end of Q2. Construction spending has averaged a 0.7% decline over the last six months, but rose 0.1% year-over-year, a thirteen-month low.

·      NAHB Housing Market Index (Aug 17) – The NAHB Housing Market Index rose 6 points to a reading of 78 in August, the highest level in the 35-year history of the monthly series and matching the record set in December 1998. Any reading above 50 is considered positive sentiment. According to Bloomberg, the index was expected to rise to a reading of 74 in the second month of Q3. Record-low mortgage rates have driven demand for new houses, but analysts warn that a surge in lumber prices could slow the momentum in the upcoming months.

·      Building Permits (Aug 18) – Building permits increased 18.8% in July, the most since January 1990, from 1,258k, revised up from 1,241k, to a 1,495k unit pace, a six-month high. According to Bloomberg, building permits were expected to rise 5.4% in July. Year-over-year, building permits rose 9.4%, following three consecutive months of decline. Single family permits rose 17.0% in July, and increased 14.8% over the past 12 months, following three consecutive months of declines. Multi-family permits gained 22.5% following an 11.1% decline in June, but fell 1.8% year-over-year, the sixth consecutive month of decline.

·      Housing Starts (Aug 18) – Housing starts surged 22.6% in July, the most since October 2016, pulling the annual pace up from 1,220k, revised higher from 1,186k, to 1,496k, a five-month high. According to Bloomberg, starts were expected to increase 5.0% at the start of Q3. Single family starts rose 8.2% and multi-family starts increased 58.4% in July, following a 13.2% gain the month prior. Year-over-year, housing starts gained 23.4% in July, following three consecutive months of decline. On a regional basis, starts rose in all four regions of the country at the start of Q3: starts gained 35.3% in the Northeast, 5.8% in the Midwest, 33.2% in the South and 5.8% in the West.

·      Existing Home Sales (Aug 21) – Existing home sales soared a record 24.7% in July from 4.70m to a 5.86m unit pace, the highest since December 2006. According to Bloomberg, existing home sales were expected to increase 14.6% at the start of Q3. Single family sales rose 23.9%, and multi-family sales jumped 29.4%. Year-over-year, existing home sales rose 8.7% in July, following three consecutive months of decline. From a price standpoint, the median cost of a previously owned home rose 8.5% in July from a year earlier to $304.1k.

·      New Home Sales (Aug 25) – New home sales popped 13.9% in July from 791k, revised up from 776k, to a 901k unit pace, the highest since December 2006. According to Bloomberg, new home sales were expected to rise 1.8% at the start of Q3. Year-over-year, sales soared 36.3% following a 9.0% increase in June. The months’ supply of new homes fell from 4.6 to 4.0 months, the lowest since January 2013. And, from a price standpoint, the median cost of a newly constructed home fell 1.9% in July from the month prior to $331k. Year-over-year, new home prices gained 7.2% following an 8.1% increase the month prior.

·      S&P/CS 20 City Index (Aug 25) – The S&P Case-Shiller 20 City Home Price Index was flat in June, missing expectations for a 0.1% rise, according to Bloomberg, and following a 0.03% decline the month prior. Year-over-year, home prices rose 3.46%, a five-month low.

·      Pending Home Sales (Aug 27) – Pending home sales rose a 5.9% in July, more than the 2.0% gain expected, according to Bloomberg, and following a 15.8% increase in June. Year-over-year, pending home sales increased 15.4%, the most since October 2012.

Trade and Currency

·      U.S. Dollar

o  (Aug 17) – The U.S. dollar traded lower as the strength of the U.S. economic recovery was in question following a weaker-than-expected reading from the New York State Empire Manufacturing survey. The dollar fell 0.3% to trade at $92.85.

·      Trade (Aug 5) – The trade balance narrowed from a revised $54.8b, a one-and-a-half-year high, to $50.7b in June. According to Bloomberg, the trade deficit was expected to narrow to $50.2b. Imports rose 4.7% to $208.95 billion, a three-month high, while exports surged a record 9.4% to $158.3 billion in June, also a three-month high. The deficit with China specifically narrowed from $27.9 billion to $26.8 billion in June, bringing the total deficit to $142.2 billion year-to-date.

·      Import Prices (Aug 13) – Import prices rose 0.7% in July, a tenth of a percentage point more than expected, according to Bloomberg, and following a 1.4% gain in June. Year-over-year, however, import prices declined 3.3%, the sixth consecutive month of decline.

Monetary Policy, Reports, and Commentary

·      Atlanta Fed GDPNow Forecast

o  (Aug 31) – Following an upwardly revised 31.7% drop in domestic activity in the second quarter, the Atlanta Fed GDPNow’s initial forecast climbed from 25.6% to 28.9% in the third quarter. However, according to the Atlanta Fed, it is important to note: “GDPNow is not an official forecast of the Atlanta Fed. Rather, it is best viewed as a running estimate of real GDP growth based on available data for the current measured quarter. There are no subjective adjustments made to GDPNow—the estimate is based solely on the mathematical results of the model. In particular, it does not capture the impact of COVID-19 beyond its impact on GDP source data and relevant economic reports that have already been released. It does not anticipate the impact of COVID-19 on forthcoming economic reports beyond the standard internal dynamics of the model.”

·      Fed Speak

o  (Aug 27) – Speaking at the Fed's annual Jackson Hole Economic Policy Symposium, Federal Reserve Chairman Jerome Powell unveiled a major shift in policy. The Fed formally agreed to a new policy approach of “average inflation” targeting, in which inflation will run “moderately” above the central bank’s 2% target “for some time.” Since January 2012, the Fed had targeted a 2% inflation goal, but had persistently struggled to reach the 2% goal the majority of the time. The new shift in policy is expected to keep rates lower for longer.

·      July 29th FOMC Meeting Minutes (Aug 18)

o  The Federal Reserve opted to leave rates unchanged at its June meeting at 0.00%-0.25% with no further policy adjustments aside from a commitment to maintain monthly purchases of $120 billion of U.S. Treasuries and mortgage-backed securities. According to the meeting minutes, officials remained concerned that the coronavirus pandemic would “weigh heavily on economic activity, employment, and inflation in the near term and was posing considerable risks to the economic outlook over the medium term.” Additionally, the FOMC discussed yield curve control, with most noting that “yield caps and targets would likely provide only modest benefits in the current environment, as the Committee’s forward guidance regarding the path of the federal funds rate already appeared highly credible and longer-term interest rates were already low.” Policy makers, however, did not provide any further details on the Fed’s new strategy for average inflation targeting.

Domestic News and Activity 

·      Politics and the Trump Administration

o  (Aug 3) – Stimulus talks in Washington stalled between Democrats and Republicans. Lawmakers on both sides of the aisle agreed on sending $1,200 in direct stimulus payments to most Americans, but could not agree on the amount of extended federal unemployment benefits, which expired on July 31st. Democrats wanted to preserve the $600 amount while Republicans wanted to cut it to $200.

o  (Aug 10) – President Trump signed four executive actions on coronavirus aid after the White House and Democratic leadership failed to reach an agreement. The measures included: $400 a week in extended federal unemployment aid through the end of 2020 – a quarter of which will be covered by states – as well as student loan relief through the end of the year, an eviction moratorium, and a payroll tax holiday for Americans earning less than $100,000 a year. A second round of stimulus checks, however, which lawmakers on both sides of the aisle mostly agreed on, must be approved by Congress.

o  (Aug 11) – President Trump said he is considering a capital gains tax cut in addition to the several executive actions he had recently signed. Though the president is not able to unilaterally cut the 20% long-term capital gains rate without Congressional approval, some of his advisers said he could issue an executive order that would slash tax bills for investors when they sell assets, known as indexing capital gains to inflation. The move, however, is likely to be challenged by Democratic lawmakers in court.

o  (Aug 12) – Joe Biden announced Democratic Senator Kamala Harris of California as his running mate for the 2020 presidential election. Some of Harris’s policy positions have included: a $15/hour minimum wage, closer regulatory scrutiny of Big Tech, and a proposed taxing of Wall Street trades and derivative transactions to pay for her Medicare for All healthcare plan. She has also promoted a tax credit for the middle-class (and rent relief), supports the Green New Deal, but has opposed trade agreements such as the Trans-Pacific Partnership and NAFTA.

o  (Aug 17) – Chinese and U.S. negotiators, including Vice Premier Liu He, U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin, delayed a video conference call, scheduled to take place on the 6-month anniversary of the signing of the Phase 1 trade deal. According to reports, the discussions were a review of the trade deal.

o  (Aug 18) – Senate Republicans introduced a scaled-back virus relief package that included $300 a week in supplemental unemployment benefits until December 27th, $10 billion in U.S. Postal Service funding, and aid for small businesses through another round of funding for the Paycheck Protection Program (PPP). The legislation also included protection for employers against lawsuits over COVID-19 infections. The proposal represented a pared-down version of the $1T legislation Republican Senators introduced at the end of July, known as the HEALS Act, as a counter-point to the $3.5T plan Democrats passed in the House in May.

o  (Aug 24) – President Trump announced that the U.S. Food and Drug Administration (FDA) is working to expand access to a virus treatment involving blood plasma from recovered coronavirus patients. Additionally, the Financial Times reported that the Trump administration was considering bypassing regulatory standards to accelerate an experimental coronavirus vaccine developed in the U.K.

o  (Aug 25) – On a video conference call, U.S. and Chinese officials signaled progress on their Phase One trade deal signed in January. Phase 1 requires China to import $77B more than 2017 levels of certain U.S. goods within the first year, and official data suggests China is not on target. However, both sides committed to carry out the accord in their first formal dialogue since early May. In a statement, China's Ministry of Commerce called the talks "a constructive dialogue" and added that the countries agreed "to create conditions and atmosphere to continue pushing forward" the deal.

International News and Activity 

·      European Union

o  (Aug 14) – GDP contracted a record 12.1% in the 19-nation Eurozone, and 11.9% in the EU in the second quarter, also the largest decline in GDP on record. Germany, the bloc’s largest economy, reported a 9.7% drop, while Italy reported a 12.8% decline.

·      The U.K.

o  (Aug 12) – The U.K. economy shrank 20.4% in the second quarter, equivalent to an annualized rate of 59.8%, and following a 2.2% decline in the first quarter. The 20.4% drop marked the worst economic hit from coronavirus in Europe.

·      China

o  (Aug 3) – China’s Caixin manufacturing PMI rose from 51.2 to a reading of 52.8 in July, marking the third consecutive month of expansion (a reading above 50) and the highest reading since January 2011.

o  (Aug 14) – Retail sales in China unexpectedly slipped 1.1% in July from a year ago, marking the seventh consecutive monthly drop and below the median forecast calling for a 0.1% rise.

-Lindsey Piegza, Ph.D., Chief Economist