Hello, this is Claire Rubin, Private Bank Investment Strategist at Fifth Third Bank with this week’s Economic Beat.
Major U.S. equity benchmarks rose to all-time highs last week, boosted by expectations for further fiscal stimulus. The S&P 500 Index rose 1.9% in total return for the week, while the tech-heavy Nasdaq Composite added 2.5% and the blue-chip Dow Jones Industrial Average gained 1.7%. The 10-year U.S. Treasury yield moved higher amid a risk-on tone in markets.
Democrats took control of the Senate on Wednesday, winning two seats in Georgia’s runoff elections. The victories leave the incoming Senate split 50-50 between Democrats and Republicans, with Vice President-elect Kamala Harris as the tiebreaker vote, solidifying slim majorities in both the Senate and House of Representatives. Markets reacted positively to the news, on expectations for more stimulus and infrastructure spending.
House Democrats are preparing to take steps to remove President Trump from office if he does not immediately resign, according to House Speaker Nancy Pelosi. The fallout comes after pro-Trump protests Wednesday led to a siege on the U.S. Capitol building as lawmakers were formally counting the Electoral College votes affirming President-elect Biden's victory in the presidential election. There were at least five deaths and dozens of injuries resulting from clashes with police.
Congress members were evacuated to a secure location during the attack on the Capitol but returned hours later after the building was confirmed clear to finish the count. Congress formally recognized President-elect Biden and Vice President-elect Harris as the winners early Thursday morning.
On the economic calendar, the Institute for Supply Management's Manufacturing Purchasing Managers Index expanded in December at the fastest pace in more than two years. Factory orders for November also beat expectations, gaining 1.0% from a month earlier. Weekly jobless claims unexpectedly declined.
In what was arguably the most closely watched release of the week, the Bureau of Labor Statistics reported that the U.S. labor market lost jobs in December for the first time in eight months, reflecting a drop in restaurant employment amid a surge in COVID-19 cases. Nonfarm payrolls fell by 140,000 from the prior month, contradicting economists' forecasts for a modest gain. Retail, professional and business services, construction and manufacturing all posted solid gains, indicating much of the economy continues its gradual recovery. COVID-19-related conditions may make traditional seasonal adjustments in the report less reliable a read on labor conditions. The unemployment rate held at 6.7%, halting a string of seven straight declines. Average hourly earnings rose the most since April, which the Labor Department attributed to the "disproportionate number of lower-paid workers in leisure and hospitality who went off payrolls."
Secretary of State Michael Pompeo announced over the weekend that the U.S. will remove restrictions on how diplomats and officials interact with Taiwan, in a move that may escalate tensions with China. Beijing had not yet replied to the latest action as the weekend concluded.
In the week ahead, the U.S. economic calendar includes inflation data, small business optimism, industrial production and retail sales. Retail sales may have declined for a third consecutive month in December, as renewed restrictions on businesses and activity were implemented to combat the surge in COVID-19 cases.
Monetary policy and the outlook for the U.S. economy will be on display, with several chances to hear from Federal Reserve officials, including Fed Chair Jerome Powell. European Central Bank President Christine Lagarde also speaks.
As always, we’ll be watching and reporting back to you. Thank you.
