With the election drawing near, politicians, pundits, and especially voters will be paying even closer attention to the state of the US economy. It’s been a wild ride since the outbreak of COVID-19 around the world, and with such information overload, it can be easy to lose track of what is going on with the recovery.
Manufacturing continues to see growth as measured by the Institute for Supply Management (ISM) Manufacturing Purchasing Managers Index (PMI). Further, ISM new orders index, a leading economic indicator, has surged to the highest level since 2004, according to data from Bloomberg, and is still showing solid gains. Given the nature of the virus and our efforts to stem its spread, it may not come as a surprise that manufacturing has rebounded faster than the services sector.
Housing is another area that has boomed following the onset of the pandemic, benefiting particularly from the behavioral shifts of the work-from-home culture and social distancing, with the added boost of historically low mortgage rates. As many parents who have had their children taking classes from home are intimately familiar, additional space has been valuable, helping fuel the growth in new and existing home sales.
Labor market improvement has tapered, however, following the initial snapback that started in May after lockdowns were lifted. The state of the job market will be a particular sticking point for voters heading into the election, and as we saw in Tuesday night’s debate, it’s a central point of focus for both candidates. As shown in the LPL Chart of the Day, weekly claims for unemployment insurance have improved from their historic levels, but the decline has tapered since August:
“This morning’s slight improvement in jobless claims is a welcome development ahead of tomorrow’s nonfarm payrolls report,” added LPL Chief Market Strategist Ryan Detrick. “While the improvement had been slowing recently, it’s an encouraging sign that the labor market isn’t deteriorating as the effects of fiscal stimulus fade.”
Friday will bring the final nonfarm payrolls report before the election and an update to the unemployment rate. While this week’s ADP employment report pointed toward additional employment gains in September, more Americans joining the labor force may keep the unemployment rate elevated. Current Bloomberg consensus expectations call for the unemployment rate to fall to 8.2% from its current level of 8.4%.
Employment, of course, is a major driver of consumer spending, and as employment growth tapered toward the end of the summer, consumer spending did too. Retail sales for the month of August missed consensus expectations as enhanced fiscal assistance was reduced, although they did exceed pre-pandemic levels for the month, and recent headlines suggest another stimulus bill may be possible to help fill the remaining income gap from more permanent job losses.
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