Predictably, Economic Data is Slowing... But it Remains Surprisingly Strong

Dec 04, 2020 | Nick Scholte


Might economic data slow more? Assuredly so I'd suggest. Yet with vaccines beginning to rollout in the coming weeks, the back half of 2021 is set to be strong. Stock markets, as forward looking mechanisms, are looking through the near term challenge.

To my clients:

As we approach year end, and tax season next Spring, I remind clients that tax documents related to your Dominion Securities investment accounts are now available online. If you are not yet set up, I’d encourage you to do so. It is very convenient and will enable permanent and ready access to these documents if ever needed. Please contact Brenda at or 778-328-7797 to request that she set you up.

It was an up week for North American stock markets with the Canadian TSX finishing up 0.7%; the U.DS. Dow Jones Index finishing up 1.0%; and the U.S. S&P 500 finishing up 1.7%.

First week of a new month, and the usual slew of important economic indicators – what I refer to as the Big 3:

- The ISM Manufacturing Index came in at 57.5, vs. the prior month’s reading of 59.0 and the expectation of economists for a 58.0 reading.

- The ISM Non-Manufacturing Index (aka: “Services”) came in at 55.9 vs. the prior month’s reading of 56.6 and the expectation of economists for a 56.0 reading.

- Today, the U.S. Employment Report showed 245,000 new jobs created in the month of November vs. the October reading of 610,000 (revised down from the initially reported 638,000) and the expectation of economists for a reading of 469,000.

As can be seen from the above, all three indicators missed expectations and slowed from the prior month’s readings. Such a slowdown is not a surprise to me. However, these measures remain broadly strong and, frankly, the level of strength IS a surprise to me given the expanding mitigation measures being adopted in the face of record highs in Covid-19 new cases, hospitalizations AND deaths.

Since it is only early December, and many months of cold weather are yet to come, it is likely the case that we are still in the early stages of the current wave of Covid-19 infections. That said, vaccine news remains encouraging. Governments are fast-tracking the approval process – the U.K. has already approved the Pfizer vaccine – and initial rollout in many countries of the developed world is likely to begin this month. Again, the vaccine developments are categorically great news. Game changing news in fact. The back half of 2021 is setting up to be very robust in economic terms.

But the six months between now and then remain challenging. As I noted in my update a couple of weeks ago, JP Morgan is now forecasting an economic contraction in the first quarter of 2021. I’d not be surprised if this expectation proves correct. At the very least, I’d expect continued slowing in the Big 3 economic indicators noted above.

Should the Big 3 indicators continue to slow, or worse, move into contraction, there may be spasms of stock market weakness. At this stage I’d suggest any such spasms should be viewed as buying opportunities. That is how I plan to treat them should they occur. My goal will be to move portfolios to modestly overweight equities (i.e. stocks).

That’s it for this week. All the best, stay safe, and make it to the vaccine!


Nick Scholte, CIM, FCSI

Vice-President & Portfolio Managere

Scholte Wealth Management
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