Equity markets are falling this morning on concerns over a new Covid-19 variant. For now, there is a lot of uncertainty surrounding its transmissibility and the efficacy of current vaccines. But the case for dollar strength still stands.
President Biden’s poll numbers are cratering, mostly due to the inflation surge. The US is unlikely to be as aggressive as the Eurozone, for example, in confronting a renewed wave of Covid-19.
More importantly for the Fed, consumer spending appears to have been very strong in November. The Federal Reserve Bank of Chicago projects that retail & food services sales (ex-motor vehicles & parts dealers) rose 1.2% m/m in inflation adjusted terms.
The supply issues that have put upward pressure on inflation in recent months have been amplified by strong demand.
The dramatic drop in initial claims on a seasonally adjusted basis – down 71k to 199k in the week ending November 20th, a 52-year low – probably overstates the strength of the labour market, but perhaps not by much. The raw initial claims data are broadly in-line with the years prior to the pandemic.
The non-seasonally adjusted data showed a rise in initial claims of 18.2k in the week ending November 20th to 258.6k. Almost all of this was due to Virginia (+17.7k), because Virginians were unable to file new claims between November 8th and November 17th.
