- Q3 economic growth was a historic rebound but recession persists.
- Consumer confidence, housing sector falter.
- Car-buying plans decline to lowest level since April.
Daily new COVID-19 cases continue an upward trend that is producing records. We are likely to see a new record of 100,000 daily cases soon.
The third quarter saw a historic rebound in economic growth, but the economy is still in a recession with a level of decline worse than the average recession. The stock market registered its worst week since March, and consumer confidence is declining as the U.S. braces for election week. The consumer has been able to keep spending against the odds. It is tough to see activity improving in the near term.
Historic economic growth: The first estimate of the third quarter real GDP increase came in at 33.1% (annualized), which was better than the 27% increase expected. It was the biggest quarterly increase in the history of the quarterly GDP data, which started after World War II. Personal consumption, spending on goods and services as well as fixed investments increased hefty double digits, while government spending fell.
The Q3 increase, however, fell far short of the growth needed to see economic output recovered. With the growth, real GDP was down 2.9% from a year ago, which is close to the average 3.3% year-over-year decline during the Great Recession. The economy has recovered a little more than two-thirds of the year-over-year decline created in the second quarter, but the economy is left down by more than any prior recession since World War II other than the Great Recession.
Consumer spending holds: The consumer has been able to keep spending, but with less support, the pandemic surging, and more uncertainty about the future. Monthly growth in consumer spending increased modestly as spending increased on most goods and services categories. Spending was supported by modest growth in personal income, which was driven by an increase in proprietors’ income (small business profits) and a slight increase in wages. Government payments declined as unemployment benefit payments declined 42%. The personal savings rate declined to 14.3%, which was the lowest savings rate since March, but savings remains elevated, as it was 8.3% in February.
Housing slows: Even the housing sector is slowing down as inventory and pricing limits additional growth in sales. Both pending and new home sales, which are based on new contracts signed, declined in September. The pending home sales index declined 2.2%. New home sales declined 3.5%. Both of the declines were a surprise and represented the first declines since April as single-family housing has been the strongest sector of the economy in the recovery. Higher prices and low inventory are limiting further growth opportunities. Pending home sales are still up 21.9% year over year. New home sales are still up 32.1% so far this year.
Consumer confidence dips: Consumer Confidence, according to the Conference Board, declined a modest 0.4% in October and left confidence down 20% year-over-year and down 24% from February. Plans to purchase a vehicle in the next six months declined in October to the lowest level since April. Plans to purchase a home increased modestly in October and improved to flat with a year ago. The index of consumer sentiment from Morning Consult saw a second week of modest decline, leaving sentiment down 18.6% since February 29. The final reading from the University of Michigan had consumer sentiment increasing 1.7% in September leaving sentiment down 19% since February.
Joblessness high: The latest data show 7.8 million on traditional unemployment benefits, which are limited to at most six months of coverage, but 22.7 million remain on some form of unemployment benefits, including pandemic unemployment assistance, which provides coverage beyond six months.
In the early weeks of the pandemic, which was more than 6.5 months ago, 22 million people had filed for unemployment assistance, and those claimants no longer qualify for continued traditional assistance. Initial claims declined to 751,000, which is the lowest weekly new claims number since March 14. Even though the trend is improving, the number of new claimants is higher than any week prior to this year going back to 1967. In other words, such a high level of initial claims suggest that layoffs continue as businesses contend with reduced activity.
Check back on Smoke on Cars for a video that will include updated data.