In case you haven’t noticed, the US economy is rebounding much better than most forecasters’ predictions. Ditto for the world economy as well. We’ll look at some encouraging numbers today. This improvement is happening despite the steady increase in business bankruptcies which is expected to continue to rise in the months ahead.
Nevertheless, the US and global economies are consistently beating expectations, and a very strong surge in GDP is expected for the 3Q which ends on September 30. The latest estimate from the Atlanta Federal Reserve Bank has US GDP expanding at a record annual rate of 32.0% in the 3Q.
I expect the Fed’s estimate of 32% will prove to be on the high side by the time we get the Commerce Department’s first official estimate of 3Q GDP late next month. As you can see above, the Fed’s latest estimate is well above that of most economic forecasters.
Of course, the US economy should be rebounding strongly following the record plunge of ‑31.7% (annual rate) in the 2Q, sparked by the COVID-19 pandemic and the ensuing economic lockdown. While the coronavirus crisis is still with us, most of the economy has reopened and consumers are spending above expectations.
Retail sales surged 16.4% in April, 17.7% in May and 7.5% in June – all well above the pre-report consensus – before slowing to more normal levels in July and August.
Now let’s look at some other economic news which has also beaten expectations recently (in no particular order).
For starters, 83% of all companies included in the S&P 500 exceeded their earnings expectations in the 2Q, a record high, according to FactSet.com which tracks such data.
Back in March, most forecasters predicted the US unemployment rate would soar to 20%-30% before peaking this year. What actually happened? The unemployment rate peaked in April at 14.7%, then dropped to 13.3% in May. The unemployment rate fell from 10.2% in July to 8.4% in August, the second largest monthly decline on record.
In July and August, 1.8 million and 1.4 million new jobs were added to the economy, both above expectations, according to the Labor Department. The experts were consistently wrong about the jobs recovery ever since the COVID-19 crisis hit.
New homes sales surged to a 14-year high in August as record low interest rates brought homebuyers out in droves. Existing home sales were up 2.5% in August, also a 14-year high, and up 10.5% from one year ago.
The median price for existing homes was $310,600 in August, up 11.4% from a year ago. This marked 102 straight months of year-over-year gains, and prices rose in every region across the country. Part of the reason for the strong price increase is a short supply of available homes. The National Association of Realtors said the total supply of available houses was down 18.6% from a year ago.
In July, we were treated to dozens of news stories from a wide variety of media outlets predicting the US economic recovery was stalling out. CNN reported: “The Economy is in Deep Trouble Again.” Similar warnings were issued by others, including CBS News, Reuters, Bloomberg and most others in the mainstream media.
Yet as discussed above, most estimates for 3Q GDP growth are in the 20%-30% range or even higher in the case of the Atlanta Fed. The Commerce Department’s advance estimate on 3Q GDP will be released on October 29.
The question is, why do mainstream forecasters and the media keep making dire predictions after their previous ones proved inaccurate? I think the answer is pretty clear: They want us to believe the economy is weak – at least until the election – because it’s bad for Trump.
The bottom line is: The country is still in a recession. The latest figures I’ve seen indicate some 12.6 million Americans are still out of work and receiving unemployment benefits, although that number is expected to drop noticeably between now and year-end.
Most forecasters, when called on it, also expect the economy to post positive growth in the 4Q. If so, that will be two consecutive quarters of positive economic growth, which means the recession will be over by year-end.
In my view, the only question now is: How bad are the bankruptcies going to be between now and year-end. Unfortunately, everything I read says it will be really bad. I think this may be what’s weighing on the stock markets this month.
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