The Texas test case

Posted by: Paul Donovan

03 Mar 2021

Daily update

  • Texas has created an economic experiment by lifting almost all pandemic restrictions on economic activity. Policymakers’ fear of the virus appears to have disappeared—if consumers’ fear levels fall (and they may not), Texas will be a test case for how consumer spending patterns shift. Economic data will still be distorted by the power failures. When New Zealand lifted domestic restrictions last September, consumption shifted in favor of services.
  • Australia saw consumer spending drive fourth quarter GDP stronger than expected (inevitably the previous quarter was revised stronger). Australia’s data of itself has perhaps limited global impact, but it again signals that easing restrictions tends to provoke a larger-than-expected economic reaction. This situation does not easily fit into a traditional recession-recovery model, hence the repeated surprises.
  • In the UK, the chancellor will repeat the budget leaks to Parliament, which will be of limited interest to investors. The British Retail Consortium shop price index showed continued deflation in February, which is not especially surprising. The Bank of England’s Tenreyro will speak on taxing savings (otherwise known as negative interest rates).
  • Eurozone producer price inflation is due—a reasonable indication of pricing power, but subject to oil base effects in the coming months.

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