While market concerns center on stimulus talks, election uncertainty, and rising COVID-19 cases, we remain encouraged by the incoming economic readings.
The data continues to fit the narrative of a sustainable economic expansion as we recover from the pandemic-induced lockdown and lingering effects of the virus. We are also encouraged by therapeutic progress and see a low probability for a second major lockdown.
Importantly, we are seeing improvement in broad-based readings across manufacturing, housing, corporate profits, and business and consumer confidence. Ironically, the improving economic readings are buying politicians time as they debate the size and shape of additional stimulus needed to support economic sectors most impacted by the pandemic.
Housing Remains a Bright Spot
We pay close attention to housing data for several reasons. Housing is a significant part of overall economic activity with many ancillary jobs tied to it. A home is usually the largest purchase a consumer makes and is a signal of overall consumer confidence. Consequently, it was encouraging to see the NAHB Housing Market Index make its sixth consecutive gain in October, to a new record high. Existing home sales soared to the highest level since May of 2006 while building permits reached the highest level since March 2007.
Homebuyer traffic is at the highest level ever, boosted by record-low mortgage rates, an increase of buyer interest in the suburbs, exurbs, and small towns, and a pandemic-driven rethinking of the concept of home as a place to live, work, study, etc. Pent-up demand ever since the 2008 financial crisis and Millennials now at peak household formation age are also major supports for housing.
Business Sentiment Continues to Improve
The preliminary October business surveys show both services and manufacturing activity continue to improve, despite the acceleration in COVID-19 cases. The Markit Flash U.S. Services PMI reached a 20-month high, while the Markit Flash Manufacturing PMI reached a 21-month high. Despite facing certain pandemic struggles, businesses in both sectors became more optimistic about the 12-month outlook amid hopes of eventual fiscal stimulus and a waning of COVID-19 risk.
The Conference Board’s CEO Confidence Index reached the highest level since 2018, driven by executives’ much more positive assessment of current conditions both in the their own industry and in the broad economy. Expected conditions for the next six months also improved. The rise in confidence translated into stronger capital spending plans for the next 12 months and upward revisions to capital spending outlays beyond the 12-month horizon. Asked about COVID’s most important long-term impact, more than 80% of CEOs pointed to accelerating digital transformation.
Conference Board and Philly Fed Indexes Support Recovery Narrative: The Conference Board’s Leading Economic Index increased for the fifth straight month and better than expected in September. In addition, the Philly Fed State Coincident Indexes
increased in 39 states in September, decreased in eight, and were unchanged in three. These readings are consistent with an economic recovery that remains intact.
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