Economic Outlook - October 2020
- After declining by -5.0% annualized in the first quarter of 2020 and -31.7% annualized in the second quarter, U.S. GDP is poised for a rebound. Economic activity moved back towards normalized levels as states reopened over the summer. We estimate that GDP grew at an annualized rate of between 25-30% in the third quarter.
- Consumer spending behavior has shifted during COVID. Spending on goods, which includes both food eaten at home and items used over the long term (like cars, appliances, and furniture), now exceeds pre-pandemic levels. By contrast, spending on services is down -8%. Since services make up about 66% of U.S. economic activity, overall GDP has declined.
- The labor market is on firmer footing compared to the pandemic’s early days. September’s unemployment rate was 7.9%, down from April’s record high of 14.7%. The labor market added 661,000 jobs in September.
- A number of large companies announced layoffs in early October that were not captured in September’s employment report. United Airlines and American Airlines furloughed over 30,000 workers on October 1, the first day they were allowed to cut jobs under the terms of their $50 billion bailout. Disney eliminated 28,000 jobs at theme parks, and Allstate laid off 3,800 employees.
- The housing market is booming. Existing home sales rose to 6.0 million units annualized in August, and new home sales reached 1.0 million annualized. Both measures are at their highest levels since 2006. Demand for new construction and home goods will offset pandemic weakness in the restaurant, travel, and leisure industries.
- On September 14th, the Federal Reserve reaffirmed their intention to keep the Federal Funds rate close to zero through 2023. They also stressed their willingness to keep rates low even if inflation exceeds their 2.0% target. The promise of low rates for the next three years is buoying stocks prices.
- Lawmakers not yet reached an agreement on additional stimulus measures. The House approved a $2.2 trillion Democratic plan in early October, but it is unlikely to win Senate approval. Secretary Treasury Mnuchin has countered with a $1.6 trillion plan. President Trump has urged Republicans to cease negotiations until the election.
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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