The Weekly Briefing - October 26th, 2020

Record Rebound in GDP Expected, But Full Recovery Still a Ways Off

The Bureau of Economic Analysis will release the preliminary 3Q20 U.S. GDP growth rate this coming Thursday. Several high-frequency GDP forecasts indicate that the U.S. economy will see a sharp rebound from the 2Q20 losses, but not yet fully recovered from the record downturn earlier this year. The GDP forecasts range from 28.0% to 35.3% annualized after dropping at an annualized pace of 5.0% and 31.4% during 1Q20 and 2Q20, respectively. These growth estimates would translate into a 6.4% to 7.9% quarter-over-quarter increase in total economic activity. A rebound in this range would represent by far the most rapid economic expansion dating back several decades. However, economic activity would still be down 2.5% to 3.9% YOY and effectively back to 1Q18 levels. Despite the incomplete status of the recovery, the anticipated growth figures underscore the broad-based nature and relative rapidity of the economic rebound to date. However, forecasters anticipate growth rates slowing over the next several quarters, and it will take several weeks for high-frequency models to project reliable figures for 4Q20. Providing additional color on the trajectory of the recovery, the Federal Reserve emphasized in last week’s Beige Book that the economy is expanding in every banking district as well as various sectors, such as manufacturing, housing, and finance. In addition, the Conference Board’s Leading Economic Index rose 0.7% last month as only two components of the index came in negative. Historical & Projected Real GDP, Billions of Chained 2012 USD, Seasonally Adjusted Annual Rate Single-Family Housing Market Continues Hot Streak

The housing market’s months-long surge showed few signs of slowing in the latest round of data as the sector continues to provide a welcome boost to the economic recovery. In the new-home segment of the market, construction activity continued apace with housing starts jumping 15.3% and completions rising 1.9% last month. Despite recording a monthly decline of 3.5%, new single-family home sales remain well above year-ago figures (albeit with a large margin of error), according to the Census Bureau. The strong performance has lifted builder sentiment to an all-time high, surpassing the record set in August, according to the National Association of Home Builders. Meanwhile, construction employment has increased by 689,000 workers since April to only 5.2% below pre-pandemic levels. The existing home market similarly continues to exhibit strength, almost certainly contributing to the recent robust spending on furniture, appliances, and other home goods. In September, sales of previously owned homes improved to a seasonally adjusted annual rate of 6.5 million—up 20.9% YOY—at a time of the year when the market typically slows, according to the National Association of Realtors (NAR). As a result, homes are trading quickly, and inventory has fallen to an all-time low of 2.7 months. The tight market for previously owned homes in turn is pushing prices higher in nearly every corner of the country. The median home price nationwide comes to nearly $312,000 as of September, according to NAR, compared to $270,000 in February. Philadelphia, Seattle, and Pittsburgh have experienced the most rapid increase in home prices, but prices are up year-over-year in all 25 of the largest markets nationwide, according to Redfin. For-Sale Residential Year-on-Year Change in Median Price & September Transaction Volume Small Business Sentiment Up Despite Continued Uncertainty

Small business sentiment continues to improve despite the uncertainty still confronting business owners in many sectors of the economy. The National Federation of Independent Businesses (NFIB) reports the small business optimism index climbed 3.8 points to 104.0 in September, marking the third consecutive month of increase. The NFIB reports 23% of small businesses plan to ramp up staffing in the next three months, a 22-point improvement over April. Despite the greater optimism among small business owners, many remain unsure of their company’s prospects in coming months. Approximately two-thirds of businesses in education services; accommodation and food services; and arts, entertainment, and recreation expect it will take more than six months for operation levels to return to normal, according to the Census Bureau’s Small Business Pulse Survey. Businesses in Las Vegas, New York, and San Francisco are the most likely to report disruptions to business activities. Small Business Owners’ Expectations for When Operation Levels Will Return to Normal

Disclosures and Disclaimers

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