Weekly Economic Report
There was a deluge of data this week from multiple employment reports for September, to August construction spending, September car sales, September ISM, and high frequency data taking us through the third week of the month. Almost all of it continues to point to a robust recovery in business revenues – with increases in both volume and price (which is to say, margins and profit), setting the stage for a continued, but lagging, improvement in jobs in coming months. With nominal consumption spending in August just -1.9% behind a year ago, the optimistic case is for dollar revenues to exceed year ago levels by year end. Adjusting for inflation, real GDP would still trail by 2% -- but the outlook for 2021 is brightening with prospects for a new stimulus bill before year end. A lot of good news for the economy, markets and wealth accumulation is being buried in the cacophony (literally this week) of politics and debates about the virus, joblessness and inequality. These are all valid concerns – but good news is good news nonetheless. Our forecast for 33% growth in the third quarter is no longer well out of consensus, as the median expectation is now about 26% and the Atlanta Fed GDPNow has risen to 34.6%. We now feel that if anything our call for 10% growth in the fourth quarter is low. Finally, we are seeing households and firms make major adjustments with regard to work from home and rent that are shifting income away from landlords to consumers and other investors. We believe a substantial downward shift in the cost of doing business will underpin a higher potential growth rate after 2020 than was anticipated pre-COVID. This will generate far more creative destruction and volatility than the plodding productivity growth since 2000, forcing investors to think well outside the existing box.