While the President’s health, the upcoming election, and additional fiscal support are all presenting uncertainty for the market, the incoming economic data continues to support our positive recovery narrative.
The initial growth rebound as pandemic lockdowns were eased was uniformly strong as substantial pent-up demand was released in most economic sectors (supported by massive government stimulus and very easy credit conditions).
We are now seeing growth moderate from the early rapid rebound but we remain confident that a sustainable economic recovery will support stock prices as we head toward 2021—despite delays in follow-on fiscal support that is needed for sectors most affected by the pandemic. Last week, we received several important monthly readings on consumer and business confidence, manufacturing, and state-level indicators that suggest the recovery remains on track.
Consumer and Business Confidence Rebound Continues
The Conference Board’s Consumer Confidence Index jumped in September by the most since April 2003, and well above consensus expectations. It was led by the biggest gain in consumer expectations since May 2009, on notable improvement in the
outlook for future business conditions and jobs. Confidence increased across all demographic, nearly all income groups, and in eight of the nine Census regions. The broad-based improvement boosted purchasing plans for the next six months. Plans to
buy a car, a home, or major appliances all increased.
Confirming the Conference Board’s reading, The University of Michigan Consumer Sentiment Index jumped to the highest level since March, and above the consensus estimate. It was the biggest monthly gain since November 2016, with both current conditions and consumer expectations improving. The increase in confidence and purchasing plans bode well for consumer spending growth in the near term.
The Business Roundtable CEO Economic Outlook Index rebounded in the third quarter, swinging back into positive territory after one quarter in contraction. Expected capital expenditures, employment, and sales all showed improvement.
Manufacturing Improvement Continues
While the ISM Manufacturing Index suggested a moderation in the manufacturing recovery, growth remains broad-based, with 14 of the 18 ISM industries expanding. Survey respondents were mostly optimistic about the outlook, order backlogs accumulated at the quickest rate since November 2018, while the customer inventories index fell to its lowest level since June 2010 (implying future production growth to replenish inventories).
State Indexes Support Recovery Narrative
The Philly Fed State Coincident Indexes increased in 48 states in August and decreased in two. This implies broad-based economic growth has resumed across the country after the lockdowns ended in late spring.
While Friday’s job report showed a less than expected 661,000 gain, weakness was concentrated in education at the state & local government levels, which declined -280,000, as many schools opened late or only partially. That will likely reverse in October, as more schools fully open. Private payrolls rose better-than expected with job gains broad-based across sectors.
Meanwhile, aggregate household net worth reached an all-time high in the second quarter and likely rose further in the third quarter—supported by strong gains in financial and housing markets. Job gains and higher net worth bode well for future consumption and ultimately economic growth and profits.
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