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Odds and Ends: Yellen, Housing, Manufacturing, Holiday Travel

President-elect Joe Biden continues to build his team and today it was announced that former Fed Chair Janet Yellen will be nominated for Treasury secretary. What can you say? It’s not like Yellen is unfamiliar to us; she has decades of proven policy making and management experience and is well-respected by her international counterparts and can hit the ground running. She is an excellent choice and consistent with Biden’s methodical, experience-based approach to picking advisors. One interesting place to watch is her views on fiscal policy. In the near term, she will support fiscal stimulus to help lift the economy out of the pandemic hole. Note though that she has a track record as a deficit hawk. Such views would be consistent with my expectation that a Biden administration will eventually pivot toward deficit reduction, but maybe that instinct has been tempered in the last few years.

The housing market remains red hot heading in the fourth quarter. Builder confidence pushed to a new record high in November:

The strong showing follows on the back of new cycle highs for single family housing starts:

Housing is traditionally a solid leading indicator and talk of a double-dip recession is wildly inconsistent with the strength the sector continues to exhibit. Meanwhile, in another blow to the narrative that the U.S. economy is struggling under the weight of the Covid-19 resurgence, the flash IHS/Markit PMI report for November indicates the economy is gaining momentum:

U.S. private sector business activity rose sharply in November, as growth momentum picked up further. The overall expansion was the fastest for over five- and-a-half years, as both manufacturers and service providers indicated a steeper upturn in output. The month also saw a survey record rise in employment and an unprecedented increase in prices, the latter in part linked to a record incidence of supply chain delays

And also despite the Covid-19 resurgence, Americans are traveling in post-pandemic record numbers. Via CNN:

Warnings from public health officials not to travel for Thanksgiving didn’t stop passengers from packing US airports and planes this weekend.

From Friday to Sunday, more than 3 million people passed through airport security checkpoints in the United States — a record weekend for air travel since the pandemic hit in March. Sunday was the biggest day for air travel since March 16, with 1.05 million people screened.

Covid-fatigue is real and many people feel the benefits of traveling outweigh the risk This is “lockdown lite.” If you are using the spring shutdowns as the model for your macro forecast, you are doing it wrong. People will shy away from food services and gyms, but much other activity will proceed will little disruption. The current situation lacks the novelty of the spring and will not induce the same degree of response. Importantly, equity markets refuse to buy into the double-dip recession story in sharp contrast to the rapidity in which they quickly incorporate the economic implications of the pandemic into prices:

Also regarding the Covid-19 resurgence, watch out for a narrative shift:

Keep an eye on follow through from the bigger states like Illinois and Wisconsin; as behavior changes those numbers will turn. The bigger picture is that Biden will be riding on the downside of the surge and the upside of the vaccine. Beware of too much near-term pessimism on the economic outlook that obscures the long-run view.

Bottom Line: Lots of moving pieces but they are generally pointing toward a brighter future if you can look past the current wave of the pandemic.