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Things are looking up for the U.S. economy

Thursday, February 4, 2021

A version of this article first appeared in the Morning Brief. Get the Morning Brief sent directly to your inbox every Monday to Friday by 6:30 a.m. ET. Subscribe

There are other things going on besides GameStop

With most of the market’s focus these last few weeks on GameStop (GME) and the memeification of the stock market, you’d be forgiven for losing track of the state of the U.S. economy.

But this week, we’ve seen the first batch of data about the opening month of 2021 rolling in. And early returns show the economy continues to remain resilient amid the continued spread of COVID-19 and a push from policymakers for Congress to pass more stimulus.

Data on increased activity in the services sector as well as the January report on private payroll growth were released Wednesday with all three reports beating Wall Street expectations.

The January private payroll report from ADP showed 174,000 jobs were added back to the private sector last month, topping expectations for a gain of 70,000.

The January reading on service-sector activity from IHS Markit came in at 58.3, the second-best reading for the index in the last six years. Only November 2020’s reading at 58.6 bested the January mark since the recovery began in the spring. Any reading above 50 indicates expansion in the sector; readings below 50 indicate a contraction in activity.

The Institute for Supply Management also released its service-sector activity gauge for January with this index registering a 58.7, the best since February 2019.

Both reports included comments from industry-level sources as well as economists which capture a mood we’ve consistently seen from the business community during this recovery — virus concerns remain present but optimism is high and things are better-than-feared.

“The improving data set the scene for a strong first quarter, and a rise in business expectations for the year ahead bodes well for the recovery to gain traction as the year proceeds,” said Chris Williamson, chief business economist at IHS Markit. “Companies have become increasingly upbeat amid news of vaccine roll-outs and hopes of further stimulus.”

In the ISM’s report, a contact in the wholesale trade industry said, “Good start to the year; business has promising growth. Market conditions are still affected by logistics issues, both domestic and international.” Another contact in general services added, “Overall, everything continues to be more optimistic; however, we are still seeing impacts from suppliers that are being affected by limiting staff due to COVID-19 restrictions.”

The most downbeat comments in the ISM’s report came, unsurprisingly, from a contact in the food service and accommodations industry.

But with a slimmed-down stimulus package passed at the end of 2020 and lawmakers continuing to make noise about an additional fiscal package getting through this month, fears the U.S. economy would roll over in the winter of 2021 appear unfounded.

The more interesting question now appears to be how far above expectations will economic growth come in for the balance of the year.

“A weighted average of the two ISM surveys is consistent on past form with GDP growth of about 5% annualized, which is roughly in line with our forecast for growth in the first quarter,” said Andrew Hunter, senior U.S. economist at Capital Economics. “And as the fiscal boost feeds through and widespread vaccinations allow the economy to reopen, we expect growth to accelerate further in the second quarter.”

By Myles Udland, a reporter and anchor for Yahoo Finance Live. Follow him at @MylesUdland


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