August 1, 2020 | Economic Outlook

Economic Outlook - August 2020


  1. The Conference Board Leading Economic Index (LEI) for the U.S. increased 2.0% in June to 102.0 (2016=100.0), following a 3.2% increase in May and a 6.3% decrease in April. The June increase in the LEI reflects improvements brought about by the incremental reopening of the economy, with labor market conditions and stock prices in particular contributing positively.

  2. Real gross domestic product (GDP) decreased at an annual rate of 32.9% in the second quarter of 2020, (the annualized rate is also expressed as 9.5% below the prior quarter) according to the “advance” estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP decreased 5.0%, annualized. The weakness in real GDP occurred in nearly all components, with government spending as the most notable exception being up. After the precipitous drop in the first half of 2020, we expect to see improved economic activity in the second half of this year resulting in an annual GDP decline of about 5%.

  3. Current data is encouraging in areas such as truck tonnage, house prices, vehicle sales, Apple mobility index, consumer spending and gasoline consumption. The good news is that the recession is already over; the economy likely bottomed in late April or early May, but the wounds from the shutdown will take a very long time to heal. Our estimate for when the economy will reach a new peak for real GDP is mid-2022. In other words, we see a long gradual recovery.

  4. The Institute for Supply Management (ISM) Manufacturing Report On Business is considered a reliable economic indicator, as is the manufacturing sector in general. According to this closely watched report, economic activity in the manufacturing sector grew in July, with the overall economy achieving a third consecutive month of growth. The July number registered 54.2%, up 1.6% from the June reading of 52.6%. The New Orders Index registered 61.5%, an increase of 5.1% points from the June reading of 56.4%. The Production Index registered 62.1%, up 4.8% compared to the June reading of 57.3%. The Backlog of Orders Index registered 51.8%, an increase of 6.5% compared to the June reading of 45.3%.

  5. Although improved since April and May, the civilian unemployment rate continues be very high at 11.1% through June, the latest number available at press time. A good measure for full economic healing is when the unemployment rate gets back below 4.0% unlikely until at least late 2023.

  6. The Conference Board Consumer Confidence Index decreased in July, after increasing in June. The Index now stands at 92.6 (1985=100.0), down from 98.3 in June. This index reflects prevailing business conditions and likely developments for the months ahead. The monthly reading details consumer attitudes and buying intentions, from data collected by age, income, and region.

  7. Half way through reporting season, corporate earnings are proving to be better than expected in the second quarter with 80% of the companies reporting so far exceeding lowered expectations. Better than expected earnings tend to reduce market anxieties about economic conditions, national politics and international relations.

Sources: Bloomberg LLC, FactSet, U.S. Department of Labor

Disclosure: This commentary reflects the opinions of Welch & Forbes based on information that we believe to be reliable. It is intended for informational purposes only, and not to suggest any specific performance or results, nor should it be considered investment, financial, tax or other professional advice. It is not an offer or solicitation.

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