A Push for Stimulus, Needed or Not

According to Dr. Anthony Fauci, the nation's top infectious disease expert, U.S. COVID-related deaths will probably reach half a million within a few days. Speaking on CNN’s “State of the Union” on Sunday, Fauci went on to say that hospitalizations, meanwhile, are at the lowest since November and weather delays to the vaccine rollout are expected to be resolved midweek. At present, more than 63M vaccination doses have been administered, a rapidly rising number fueling expectations of returning to some semblance of normal sooner than later amid organic growth.

Meanwhile, speaking of inorganic growth, the final push for the stimulus bill begins today with a House Budget Committee meeting at 1 p.m. ET. A full House vote is reportedly planned by Friday, setting up a Senate decision next week. According to reports, Senate Democratic leaders are working furiously behind the scenes to hammer out any changes to the bill required to get all 50 votes needed to pass the legislation. While both sides agree further support is needed in particular areas of the economy, many deficit hawks are beginning to question the need for an additional near $2 trillion in aid, particularly with a hefty – and rising – savings rate, billions in stimulus yet to be utilized from the December ‘20 package, and a sizable improvement in the latest round of economic data, not to mention the inclusion of many non-COVID related items. 

Recall, at present, President Biden has proposed $1.9 trillion in additional funding with another round of direct payments at $1,400 per qualifying person, enhanced federal unemployment benefits to $400 per-week through August 29, and an increase in the federal minimum wage to $15 per hour by 2025. The proposal also includes extending the eviction and foreclosure moratorium until the end of September, $350 billion in state and local government aid, $290 billion for education, $75 billion for COVID testing and vaccination, and $50 billion for small businesses.

With vaccination progress and a renewed push for stimulus, investors appear to be imagining both an economy reopened, as well as one plagued by rising inflation as a result of massive debt and deficits, which at the moment appear unchecked by spending cuts or tax increases.

According to Bloomberg data, 10-year yields climbed to the highest level in a year with the 5/30 yield curve hitting the steepest since 2014 at a spread of 157.45bps. Equities, meanwhile, ended mixed last week as the S&P 500 finished 0.71% lower and the Nasdaq shed 1.57%, while the Dow had a slight gain of 0.11%. Overnight, equities were down an average 1.1%.

This morning, the 5-year is up 1bp at 0.59%, the 10-year is also up 1bp 1.35%, and the 30-year is steady at 2.14% as of 8:38am ET.

Equities are down 0.5%, currently trading at 31,326.65 as of 9:32am ET.

On Friday, existing home sales unexpectedly rose 0.6% in January from 6.65m to a 6.69m unit pace, a three-month high. According to Bloomberg, home sales were expected to decline 2.4% at the start of 2021. Single family sales rose 0.2%, and multi-family sales gained 4.1%. Year-over-year, existing home sales rose 23.7% in January, following a 20.7% increase in December. From a price standpoint, the median cost of a previously owned home rose 14.1% in January from a year earlier to $303.9k, down, however, from the all-time high of $313k in October.

This morning, the Chicago Fed National Activity Index unexpectedly rose from 0.41, revised down from 0.52, to 0.66 in January, a three-month high. According to Bloomberg, the index was expected to rise to 0.50 at the start of 2021. 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 January, 53 of the 85 monthly individual indicators made positive contributions, while 32 made negative contributions.

Also this morning, the Dallas Fed Manufacturing Activity Index unexpectedly rose from 7.0 to 17.2 in February, a four-month high. According to Bloomberg, the index was expected to decline to 5.0 in the second month of Q1.

Later today, Dallas Fed President Robert Kaplan will take part in a virtual Q&A hosted by the Garland Chamber of Commerce at 12:00 p.m. ET, Fed Governor Michelle Bowman will discuss economic inclusion at a virtual event hosted by the Dallas Fed at 3:30 p.m. ET, and also at 3:30 p.m. ET, Dallas Fed President Robert Kaplan will make remarks at an `Advance Together Celebration’ hosted by the Federal Reserve Bank of Dallas.

Tomorrow, the FHFA House Price Index is expected to rise 1.0% in December following a similar gain the month prior, and the S&P CoreLogic CS 20-City Home Price Index is expected to rise 1.25% in December, down from the 1.42% gain in November. Also, the Conference Board’s Consumer Confidence Index is expected to rise from 89.3 to a reading of 90.0 in February.

Later this week, on Wednesday, new home sales are expected to rise 1.5% in January from 842k to an 855k unit pace.

On Thursday, durable goods orders are expected to rise 1.0% in January, following a 0.5% gain the month prior, and initial jobless claims are expected to decline from 861k to 825k in the week ending February 20. Additionally, GDP is expected to be revised up from 4.0% to 4.2% in the fourth quarter.

Finally on Friday, the PCE is expected to rise 0.3% in January and 1.4% over the past 12 months, up from the 1.3% pace reported in December, and the core PCE is expected to rise 0.1% in January and 1.4% year-over-year.

-Lindsey Piegza, Ph.D., Chief Economist