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The recovery shifts to a lower gear

October 23, 2020
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Monthly Review (Page 3)

Some components of the economic recovery downshifted in September, but this was expected given the unsustainable surge in activity from May through August. Job growth, while still well above normal, slowed again for September, but the unemployment rate dropped to the lowest level since March. Also positively, business surveys remained strong in September with improved hiring expectations by service industries and for small businesses. Retail spending jumped in September and is now 4.2 percent above the February level (just before the coronavirus hit), and is up by a solid 5.4 percent from year-earlier levels. Big-ticket expenditures remain especially hot, with continued strong increases in auto (both new and used) and home sales. Long-term interest rates have ticked a bit higher in recent weeks, moving near the top of their post-pandemic range, but remain historically low. Equity markets bounced back from September’s losses, rising to just below the recent record highs for most major domestic indices.

Outlook (Page 4)

Economic growth is expected to slow in the fourth quarter and into 2021, coming off of the third quarter’s record surge, but should remain well above trend as the recovery continues. Assuming that effective vaccines become widely available by mid-2021, we expect annualized growth rates of around 4-6 percent through 2021 — an extended period of rapid recovery from this year’s downturn. We expect this above-trend economic growth for next year regardless of who wins the 2020 Presidential election, as significantly more fiscal stimulus is likely in either case. Beyond 2021, however, significant policy differences between the two candidates (especially on tax rates and regulatory policy) could cause a wider divergence of economic outcomes. Risks in the near-term are centered on the virus with elevated new infection rates (and accompanying government restrictions) still acting as a drag on consumer activity and hiring by businesses. A later release or slow adoption of vaccines could also be a threat for projected growth next year.

Go deeper with the full October dashboard linked below.