AIIS October 2020 Market Update

After losing more than 20 million jobs in April (on top of 1.4 million in March) as a result of the pandemic lockdowns, the economy regained 2.7 million in May and 4.8 million in June. July and August combined for 3.3 million.

SEATTLE (Scrap Monster): The economic recovery is looking less like a V.

Or even a U.

Although it is still moving in the right direction, the pace of recovery has slowed, with the economy adding 660,000 jobs in September, according to the Bureau of Labor Statistics, lowering the unemployment rate to 7.9 percent.

During a normal month, this would be a stellar number, but, of course, a normal month has not been seen for quite some time. After losing more than 20 million jobs in April (on top of 1.4 million in March) as a result of the pandemic lockdowns, the economy regained 2.7 million in May and 4.8 million in June. July and August combined for 3.3 million, but September’s number means the country has clawed back only about half of the positions that were lost in the spring.

In addition, many people are still losing their jobs. Initial jobless claims during the week ending Oct. 10 reached their highest level in seven weeks at 898,000, well above what had generally been expected by economists. Before the coronavirus hit, a typical week saw about 200,000 claims.

Federal Reserve Vice Chair Richard Clarida said on Oct. 14 that, while the COVID-19 downturn “was by far the deepest one in postwar history … it also may go into the record books as the briefest recession in U.S. history.”

That brevity notwithstanding, Clarida added that the economy will likely not return to its pre-pandemic size for another year, nor to its 3.5 percent unemployment rate of late 2019-early 2020 for an even longer time.

“While economic recovery since the spring collapse has been robust, let us not forget that full economic recovery from the COVID-19 recession has a long way to go,” Clarida said, adding, “It will take some time to return to the levels of economic activity and employment that prevailed at the business cycle peak in February, and additional support from monetary – and likely fiscal – policy will be needed.”

The Fed does not have a Federal Open Market Committee meeting scheduled for October, but it is expected to maintain an accommodative monetary policy by keeping the target range for the federal funds interest rate at 0 to 0.25 percent for the foreseeable future.

As for fiscal policy, efforts to enact relief legislation have stalled with House Democrats, Senate Republicans and the Trump White House unable to reach agreement on another package of business assistance and consumer stimulus. Treasury Secretary Steven Mnuchin, during an appearance on CNBC on Oct. 15, expressed doubt that a deal would be completed before Election Day on Nov. 3.

“We’re going to keep trying,” said Mnuchin, who has been the administration’s lead negotiator with Congress on the matter. “Don’t want to say not likely but there are significant issues.”

According to the minutes of the September 15-16 Federal Reserve meeting, the central bank’s board members observed that, “with the reopening of many businesses and fewer people withdrawing from social interactions, consumer spending was rebounding sharply and appeared to have recovered about three-fourths of its earlier decline.” This is consistent with recent measures of consumer confidence, as The Conference Board’s Consumer Confidence Index recorded a nearly 15-point increase in September to 101.8. (The index exceeded 130 early in the year.)

“A more favorable view of current business and labor market conditions, coupled with renewed optimism about the short-term outlook, helped spur this month’s rebound in confidence,” the board’s senior director of economic indicators said. “Consumers also expressed greater optimism about their short-term financial prospects, which may help keep spending from slowing further in the months ahead.”

The University of Michigan’s Index of Consumer Sentiment, meanwhile, reached a six-month high of 80.4 in September, up from 74.1 in August.

“While consumers have anticipated gains in the national economy ever since the April shutdown, the September survey recorded a significant increase in the proportion that expected a reestablishment of good times financially in the overall economy,” the survey’s chief economist said. “The recent gains are encouraging even though they were largely due to upper income households. Indeed, the data indicate that lower income households face continued income and job losses compared with the modest gains expected by upper income households.”

Confidence in the manufacturing sector largely held steady in September. After four months of gains, the Institute for Supply Management’s Purchasing Managers Index dipped less than a point to 55.4. Notably, this is higher than the 50.1 recorded in February, the month before lockdowns were implemented. Of 18 industries surveyed, 14 reported growth.

“Survey Committee members reported that their companies and suppliers continue to operate in reconfigured factories and are becoming more proficient at maintaining output,” the chair of the institute’s Manufacturing Business Survey Committee said. “Panel sentiment was optimistic (2.3 positive comments for every cautious comment), an improvement compared to August.”

The National Association of Home Builders Housing Market Index reached an all-time high of 83 in September. The index, which has been measured for 35 years, fell to 30 in April before steadily recovering. The association’s chief economist cautioned that spiraling lumber prices could slow expansion in the housing market, but added, “That said, the suburban shift for home building is keeping builders busy, supported on the demand side by low interest rates. In another sign of this growing trend, builders in other parts of the country have reported receiving calls from customers in high-density markets asking about relocating.”

The Dow Jones Industrial Average closed September at 27,781.70, down 2.4 percent on the year, but up nearly 50 percent since it bottomed out on March 23. The S&P 500 Index ended September at 3,363, 4 percent higher than it started the year.

The dollar on Sept. 30 was trading at 0.85 euros, 0.77 pounds, 105.59 yen and 6.79 yuan.

The United States is about to get some good economic news. In fact, on paper, it will be the greatest economic news in the nation’s history. The Bureau of Economic Analysis is to announce the growth rate for the third quarter on Oct. 29, and that number is certain to be huge – likely an annualized rate of around 25 to 30 percent. But this, of course, comes after a quarter in which the shuttered economy shrunk at an annualized rate of 31.4 percent. On Wall Street, a big loss in the market is often followed by a day of significant gains, with the upswing termed a “dead cat bounce,” because even a dead cat, if dropped from high enough, will bounce back up a bit after hitting the ground. The strong Q3 numbers that are expected might be a sign that, despite all the challenges, this year will end strong and there is reason to be optimistic about 2021. Or they might mean that the economy has something in common with a deceased feline.

Courtesy: AIIS            

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