September/Mid-October 2020

Introduction

This past weekend, several members of my immediate family and I were discussing the 2020 political elections including the race for the presidency. One depending on their political party can make the case for giving President Trump credit for all the blame and little to no credit for the many good things that have happened in the U. S. economy since the beginning of 2020. Let’s examine the data below in an apolitical way.

Key September/Mid-October Data

Positive and Negative Signs

The Covid-19 virus caught many Americans and politicians at all levels somewhat off-guard with numerous mixed messages coming out of Washington, D.C. and state capitals across this country in the early stages of the pandemic. It is also true that America and Americans rallied in ways most would have thought impossible in early to mid-March as the U.S. began to marshal a coherent across the board challenge to this deadly outbreak. Early on experts predicted the loss of American lives could reach two million or higher by the end of the year if we did not respond properly, while the current number of deaths at roughly 225,000 is too high. It is a mere shadow of the initial dire forecast. Doctors, nurses, hospitals, truckers, manufacturers have all stepped up to introduce and deliver new drugs, new treatments, needed supplies from masks to ventilators and get them to where they were needed seemingly overnight. Let’s examine the economic facts.

Current Issues

At the end of March, the future of our economy with COVID-19 looked dire: The Dow Jones Industrial Average had declined by 38.4 percent from its all-time high in mid-February; the NASDAQ (-32.5 percent) and the Wilshire 5000 (-37 percent) also fell sharply from record highs. On April 5th, Nobel prize winning economist Paul Krugman predicted 20 percent unemployment by mid-April with record numbers of Americans out of work. Investment guru Mohammad A. El-Erian predicted in April U.S. GDP would decline between 10-14 percent on an annualized basis. Recent data reveal the overall U.S. economy was much stronger going into the downturn and rebounded more assertively than most expected! Consider the following:

The U.S. Unemployment Rate for April reached 14.7 percent and then unexpectedly declined. The U.S. Unemployment Rate fell to 13.3 percent in May with a surprising 2.7 million jobs created, followed by a shockingly low Unemployment Rate of 11.1 percent in June creating an astounding 4.8 million jobs. In fact, the U.S. unemployment rate as of the end of September was 7.9 percent with 11.4 of the 22.1 million jobs lost to the COVID-19 pandemic having been recovered as of a recent October 2020 U.S. Labor Bureau of Labor Statistics report. On the real estate front, sales of new single-family homes in May were 676,000 which exceeded May 2019 results. The good news continued over the summer with sales of new single-family homes in August were at a seasonally adjusted annual rate of 1,011,000 according to the U.S. Census Bureau and the Department of Housing and Urban Development. This is 4.8 percent above revised data for July and was followed by a preliminary increase of 8.5 percent or almost 1.1 million in sales for September.

The Institute for Supply Management’s (ISM) manufacturing index saw economic activity grow to 43.1 percent in May and climbed another 9.5 points in June to 52.6 percent while closing September at 54.5 percent. Historically, when the index surpasses 50, it signals an end to a manufacturing recession. While the ISM non-manufacturing (service) index reached 57.1 in June and 57.5 for September.

Northwood University's McNair Center now predicts 2020 U.S. automobile light truck and SUV sales will reach 15 to 15.1 million units sold, 3 million more than many experts forecasted in March.

Oil prices briefly turned negative in late April raising the fear of a long price war between Russia and Saudi Arabia that would devastate U.S. oil interests in multiple states resulting in numerous bankruptcies. Oil recently closed above $40 a barrel, leaving many surprised and relieved the U.S. Oil Industry took less of a hit than originally expected.

Goldman Sachs in July called for -4.6 percent annual growth for 2020 after -31.4 percent growth was reported in the U.S. economy in Q2. The Atlanta Federal Reserve Bank’s GDPNow model estimates positive real U.S. GDP growth of 35.3 percent in Q3; with the Wall Street Journal’s survey of economists predicting much slower growth of 3.8 percent real GDP in Q4. The respected Kiplinger’s Investment newsletter calls for historically respectable real U.S. GDP growth of 3.8 percent in 2021.

The Conference Board’s June U.S. Consumer Confidence Index soared by 13.3 percent from 86.6 in May to 98.1 in June, after declining a bit over the summer, the index closed the month of September at 101.8. Furthermore, gasoline sales jumped 15.3% in June and remain high over the summer and into September. Even though gasoline sales have been impressive since June, sales for the first 9 months of 2020 trail those of 2019 by roughly 9 percent; a shear fire sign that the U. S. economy has recovered will be when annual miles driven get back to 2019 levels. At the end of February, we had only tested 316 Americans for the COVID-19 virus; today more than 130 million tests have been administered to date.

Finally, from their March lows: The Dow Jones Industrial Average is up 56.47 percent; the Wilshire 5000 is up 64 percent (above its pre-COVID all-time high); and, the NASDAQ is up roughly 75 percent (above its pre-COVID all-time high) at 11,548.28.

Conclusion

Today, we need more celebrating and less blaming across America as no one I know and probably you know was predicting the U.S. economy would recover so soon especially to the degree outlined above. It is time for America to celebrate her great successes in fighting COVID-19 while doing its best to keep the American economy afloat as well.

Contact Us

Comments or questions should be directed to Dr. Timothy G. Nash at: tgnash@northwood.edu or (989) 837-4323. The NU Outlook is a monthly publication of The McNair Center for the Advancement of Free Enterprise and Entrepreneurship at Northwood University. To view Northwood University’s Monthly Economic Outlook Newsletters from previous months, please visit mcnair.northwood.edu/mcnair-economic-outlook. For more information about Northwood University, our academic programs and enrollment opportunities for students, visit www.northwood.edu.