Economic Outlook - December 2020
- U.S. Gross Domestic Product (GDP) had a strong recovery in the third quarter up 33.1%, after dropping 31.7% in the second quarter. On a year-over-year basis, the U.S. GDP is still lagging 2019 by approximately 3%, but regaining strength. We forecast the U.S. will have another solid GDP print in the fourth quarter, with mid-to-high single digit growth, but nothing like the bounce back we felt in third quarter. U.S. GDP is projected to grow at an annual pace of 3-3.5% in 2021.
- The Institute for Supply Management (ISM) indicated that November was another strong month for U.S. manufacturing, just slightly below the two-year high hit in October. Manufacturing has been expanding, and current low inventory levels suggest that there is room for this expansion to continue, a good sign for the overall economy. The ISM believes customers’ levels are ‘too low’, the lowest in over a decade. Coming out of the recent recession, we would like to see stores and other manufacturing customers growing their inventory in anticipation of increased demand. However, at these extreme levels, even without surging demand, we should see continued growth in manufacturing just to normalize inventory levels.
- Typically, during recessions, the housing market feels the pain, but this recession was very different. With the tailwinds of low interest rates, low inventory, and people spending more time at home than ever, housing has flourished. In October, construction spending was up 1.3%, but new residential sales were down slightly, by 0.3%. The residential housing and commercial real estate markets will be vital to watch in the coming months as the pandemic implications continue to unfold and ripple across different parts of the economy.
- The labor market is continuing to improve, but the rate of improvement is slowing. In September, 661,000 jobs were added in private nonfarm payroll, another 638,000 in October and 245,000 in November. This number was a big miss versus the consensus number of 475,000 jobs. This is the lowest number of added jobs since May. The unemployment rate is now stands at 6.7% in the U.S.
- Like many other economic indicators, consumer spending increased in October, pointing to a strong recovery. However, the growth is slowing, as October’s growth rate was 0.5% versus 1.2% in September. Household income fell 0.7% in October as the federal aid packages granted through the CARES Act faded away. These are important measures to watch as over two-thirds of the GDP in the U.S. comes from consumer spending.
- Debt worldwide is continuing to increase, and is set to reach all-time highs in 2020. With global banks slashing interest rates, forecasting not to raise them for years, and even purchasing corporate debt in some cases, the trend does not look like it is reversing anytime soon. Global debt is set to reach $277 trillion by the end of the year, a record 365% of global GDP.
- At this time, it is widely accepted that Joe Biden will be the next United States President, although the election results are being contested. The House of Representatives remains in Democratic control and in January there will be a runoff election for both Senate seats in Georgia. If Democrats win both, they will have the power of a split house as any tie-breaking vote goes to Vice President elect Kamala Harris. This has immediate implications as an additional stimulus package has been debated for months with Republicans wanting a smaller, targeted package while Democrats are pressing for a more encompassing package, similar to the CARES Act passed in March.
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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