by Louis Navellier

December 22, 2020

Housing Starts Image

The Federal Open Market Committee (FOMC) held its last 2020 meeting last Wednesday and issued a statement that was mostly about Covid-19 and its impact on the U.S. economy. In his virtual press conference, Fed Chairman Jerome Powell said that the Fed will keep key short-term interest rates at or near 0% through 2023. The FOMC statement also reiterated that the Fed has a 2% inflation target and will also strive to achieve “maximum employment.” The Fed also confirmed that it would continue to buy $80 billion per month in Treasury securities and $40 billion in agency-backed securities, including mortgage-backed securities. In other words, they will continue their monetary expansion policies of recent months.

The good news is that the Fed is now expecting a full-year GDP contraction of only -2.4% for 2020, far less than its previous forecast of a -3.7% full-year GDP decline, made last September. The Fed’s forecast for 2021 annual GDP growth was raised to a robust 4.2% increase, up from its previous forecast of 4%.

The Economic Indicators Released Last Week Were a “Mixed Bag”

While the FOMC was gathering last Tuesday, another branch of the Fed reported that industrial production rose 0.4% in November, due largely to a 5.3% surge in the production of motor vehicles and auto parts. Mining output rose 2.3% even though it has declined 12.5% in past 12 months due largely to lower energy prices. Utility output declined 4.3%, due largely to seasonally warm weather for much of the U.S. in November, but due to a colder December, utility output is expected to rise in December. Overall, industrial output is still 5% below February’s level – just before the pandemic commenced.

On Wednesday, the Commerce Department reported that retail sales declined 1.1% in November, which was significantly below economists’ consensus expectation of a 0.3% decline. Additionally, October’s retail sales were revised down to a 0.1% decline vs the +0.3% increase initially reported.

This was the first retail sales decline in six months, so that does not bode well for the current holiday shopping season, especially not with bars and restaurants closing in December after posting a 4% decline in November. Surprisingly, electronic sales declined 3.5% in November – another warning sign that this holiday shopping season could be disappointing. Vehicle sales also declined 1.7% in November as many categories reported sales declines. Overall, this was a horrible retail sales report. It came as a big surprise, so I expect that many economists will now have to cut their fourth-quarter GDP estimates, despite the fact that the Atlanta Fed revised its fourth-quarter GDP forecast to a +11.1% annual pace last Wednesday!

On Thursday, the Labor Department reported that new weekly unemployment claims rose to 885,000 in the latest week, up from a revised 862,000 in the previous week. This was the highest weekly claims total since September and much higher than the economists’ consensus estimate of 808,000. The good news was that continuing unemployment claims declined to 5.508 million in the latest week vs. a revised 5.781 million in the previous week. This was better than expected, since economists were expecting to see 5.7 million claims. Since millions may lose their unemployment insurance after Christmas, Congress is racing to pass a new stimulus bill before they go on their holiday break.

The best news last week was that the Commerce Department announced that November housing starts rose 1.2% to an annual pace of 1.547 million. In the past 12 months, housing starts rose 12.8%. Also encouraging is the fact that building permits in November rose 6.2% to an annual rate of 1.639 million. In the past 12 months, building permits have risen 8.5%. Clearly, the housing market remains very healthy, which is great news for Green Brick Partners (GRBK) and other homebuilders.

The other good news was that the Conference Board announced on Friday that its Leading Economic Index rose 0.6% in November, following increases of 0.8% and 0.7% in October and September, respectively. So, regardless of many states imposing Covid-19 restrictions, based on the LEI, it appears a strong recovery is underway. Perhaps that is why the Atlanta Fed sees double-digit growth this quarter.

Navellier & Associates does own Green Brick Partners (GRBK) in managed accounts. Louis Navellier and his family do own Green Brick Partners (GRBK) personally via Navellier Managed accounts.

All content above represents the opinion of Louis Navellier of Navellier & Associates, Inc.

Please see important disclosures below.

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Global Mail is on Hiatus

Sector Spotlight by Jason Bodner
2020 in Review & My 2021 Preview (Part 2 of 2)

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Read Past Issues Here

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Louis Navellier
CHIEF INVESTMENT OFFICER

Louis Navellier is Founder, Chairman of the Board, Chief Investment Officer and Chief Compliance Officer of Navellier & Associates, Inc., located in Reno, Nevada. With decades of experience translating what had been purely academic techniques into real market applications, he believes that disciplined, quantitative analysis can select stocks that will significantly outperform the overall market. All content in this “A Look Ahead” section of Market Mail represents the opinion of Louis Navellier of Navellier & Associates, Inc.

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