Economic Outlook - November 2020
- U.S. Gross Domestic Product (GDP) rebounded sharply in the third quarter, growing at a 33.1% annual rate, although real GDP is still down 2.9% from a year ago. The economy received a boost from spending by the federal government, which borrowed from the future to accommodate spending today. The record third quarter surge is expected to give way to a more moderate pace of growth in the 4th quarter with GDP projected to grow at an annual pace of approximately 3%.
- U.S. manufacturing posted a strong gain in October and reached its highest level in two years. According to the Institute for Supply Management, an association of purchasing managers, manufacturing is at its highest level since September of 2018. U.S. manufacturing activity dropped less and recovered more compared with service industries, boosted by a sharp rebound in demand for durable goods. COVID-19 has driven a shift from consumer spending on travel and other services toward the purchase of goods, and the housing market has benefited from low interest rates and increased demand.
- Housing has benefited; existing home sales rose to the highest level in 14 years. Record-low mortgage rates and a desire for more space have driven demand. Contract closings increased in September by 9.4% from the prior month to an annualized 6.54 million units, the highest reading since 2006.
- Employment conditions are improving with Nonfarm payrolls increasing by 638,000 jobs in the month of October and the unemployment rate fell to 6.9%. The largest job gains came in the hardest-hit sectors during the pandemic, as leisure and hospitality jumped by 271,000 jobs. Continued improvement on the labor front could be a risk with a recent uptick in COVID-19 infections and the political uncertainty following the election. The result could be businesses taking a cautionary stance on spending.
- U.S. consumers have notably focused on savings in the volatile economic environment brought on by the coronavirus pandemic. The monthly consumer savings rate surged to 35% as the economy went into a recession earlier this year. While the monthly savings rate has slowed to 15% since, it is still significantly higher than the monthly average of approximately 8% over the past 10 years. Once consumers are convinced that the economy is on good footing, economic growth could receive a significant boost.
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