August/Mid-September 2020 — Northwood University McNair Center for the Advancement of Free-Enterprise and Entrepreneurship

Introduction

Mid-way through September the U.S. death total due to the COVID-19 pandemic stands at just under 195,000 with cases surpassing 6.5 million. The good news is that the overall mortality rate is down below 3 percent at 2.96 percent and falling while just under 90 million tests for the COVID-19 virus have been administered across the United States. Many Americans are worried that the number of COVID-19 cases are set to skyrocket with the reopening of K-12 schools and U.S. colleges and universities across much of the United States. The recent trend of declining U.S. death rates could be reversed if less than responsible activities relative to social distancing are practiced.

Key August / Mid-September 2020 Data

Positive and Negative Signs

Many U.S. stock markets reached all-time record highs during the month of August with the NASDAQ and S&P 500 doing so numerous times. The Dow Jones Industrial Average, after losing more than 34 percent of its value in March, made a tremendous comeback, peaking at a 2020 high in August, less than 1,000 points below an all-time record. Currently the NASDAQ, S&P 500, the Wilshire 5000, and the Dow Jones Industrial Average have rebounded slightly after falling off the heated August pace in early September. Many experts believe all four indices will test new all-time highs between now and the 2020 elections in early November. Future market movement will be correlated to progress made relative to a COVID-19 vaccine. The announcement of a COVID-19 vaccine ready to administer before the election could very well be the tipping point and insure the re-election of Donald Trump. Failure to produce a vaccine before the election has many skeptical regarding a Trump re-election bid.

Today, the U.S. Ten Year Treasury Bond Yield sits at roughly .7 percent and has not moved much since April. The current state of U.S. interest rates is causing many to reflect on the state of the U.S. economy leaving some concerned a downturn or even recession is possible in the months ahead. The view that a declining economy is possible is offset by others who see gold prices signaling stability as gold, which broke above $2,000 a troy ounce in August, seems to have settled below $2,000 an ounce at roughly $1,950.

Current Issues

The U.S. economy is trying to show that a “V”-shaped recovery is underway. Not only are U.S. stocks at or near all-time highs, but the doom and gloom that was foreshadowed by March unemployment rate predictions, has not come to fruition. Many believed the pandemic might well challenge the Great Depression high of 24.9 percent unemployment. Instead it settled at just under 15 percent and has steadily declined to 10.2 percent in July and 8.4 percent in August. Employers added 1.4 million jobs in August according to the Bureau of Labor Statistics, which followed 1.7 million jobs added in July and 4.8 million jobs added in June. Including May numbers, the United States economy has created more than 10 million jobs since the downturn began. To date, the U.S. economy has recovered just under half of the jobs lost during the pandemic, leaving roughly 11.5 million jobs left to recover, which would return total jobs in the United States to almost 155 million Americans employed. The impressive August unemployment rate of 8.4 percent is complimented by the fact that the labor force participation rate went from 61.4 percent in July to 61.7 percent in August. The August job gains showed signs of slowing yet were impressive when you look at net change. Of the 13 major job categories in the U.S. Bureau of Labor Statistics model, only one, mining and logging saw the U.S. economy lose jobs. Retail trade was the largest single beneficiary of job creation in the private sector, creating 248,900 jobs. The largest producer of new jobs in the model was government which created 344,000 new jobs in August with a large percentage of those jobs being short-term employment for census data collection. Professional and business services created almost 200,000 new jobs in August, while leisure and hospitality created 174,000 jobs. Healthcare and social assistance and transportation and warehousing were the 5th and 6th most productive categories creating 90,100 and 78,100 new jobs respectively. With 2020 Q2 U.S. GDP declining more than 30 percent on an annualized basis, a “V” recovery will need a powerful Q3 GDP positive growth rate to validate its existence. Currently the Atlanta FED’s GDPNOW is providing such a validation. As of September 15, the Atlanta FED’s GDP forecasting tool is predicting Q3 U.S. GDP growth to be 31.7 percent. If the figure holds, this will signal a very strong third quarter and set the stage for an equally strong fourth quarter. In addition to strong data from U.S. stock markets and a strong jobs recovery, we are feeling quite good about the economy as major manufacturing and service indices produced by ISM show both segments of the economy are out of recession as well.

Conclusion

The U.S. economy finds itself in a sea of “trying times”. The COVID-19 virus has not been predictable but could be facing its “Waterloo” as there are several promising vaccine candidates on the horizon from pharmaceutical researchers here and abroad.

However, we believe much of the economic growth of the last three years will cease to exist if Congress and the White House, (however they are formulated) post-elections, ceases to honor recent tax and regulatory reforms. We believe that the hallmarks of the current administration, relative to tax cuts, regulatory reform, judicial appointments and trade and foreign policy have left the country in a stronger position both from a performance and bargaining perspective. We are afraid if a new administration fails to support the continuation of said policies, America runs a very high risk of plunging into an economically-driven recession or depression, rather than our recent Black Swan downturn.

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.