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Two Signs the Economy is Headed in the Right Direction

November 9, 2020
Ted HansonBy Ted Hanson
Securities Analyst

Winston Churchill once said, “there is nothing wrong with change, if it is in the right direction.”

Our world has changed a lot over the past year. Most of the change at the beginning of the year was in the “wrong” direction, as a global pandemic upended our lives. People across the globe have spent much of this year piecing their lives back together in hopes of returning to some semblance of normal. However, the U.S. economy has also begun to experience change in the “right” direction toward a new normal. Let’s look at a few of those indicators.

 

Gross Domestic Product (GDP)

GDP is the value of all goods and services produced across the economy, and is an important indicator of the health of our economy. The U.S. economy grew at a record-breaking pace in the third quarter, increased 7.4% over the prior quarter and an annualized rate of 33.1%, recovering about two-thirds of the second quarter decline. The third quarter increase points to an economy that is recovering at a quicker than anticipated pace. The below chart from the Wall Street Journal shows that consumer spending (which accounts for over two-thirds of U.S. GDP) was a large driver of the change in the “right” direction.

Chart: Contributions to GDP change

During the third quarter, the American consumer emerged from stay-at-home orders and was able to spend stimulus money on goods and services. However, there is still room to improve as some services such as travel, entertainment, and restaurants remain below pre-pandemic levels. The expectation is the fourth quarter will continue to grow but at a slower pace than the third.

Employment

Employment numbers are also trending in the right direction. The unemployment rate fell from 7.9% in September to 6.9% in October. The unemployment rate has already fallen below the year-end forecast of many economists. The leisure and hospitality sectors have experienced some of the biggest gains in employment, an encouraging sign. As the two charts from the Wall Street Journal show, the economy has recovered much of the employment loss experienced from the pandemic. However, the unemployment rate remains roughly twice as high as it was at the start of the year.

Chart: Unemployment Rate

Chart: Initial Unemployment Claims

In addition, initial unemployment claims have continued to trend downwards, but remain at historically high levels.  Going forward, virus related risks might increase pressure on the employment numbers. Overall, employment is trending in the right direction with the expectation that it will continue to do so, albeit at a slower pace.

Other Strong Indicators

We continue to believe in the strength of our nation. After all, GDP and employment aren’t the only trends moving in the “right” direction. Housing remains the strongest it has been since 2006, and manufacturing and retail sales have experienced strong performances. Add that to the probability of another stimulus package as well as further development of a vaccine and treatment, the economy will have the tools necessary to continue our recovery.

We will remain fully invested and diversified as we focus on our commitment to your long-term goals. As Winston Churchill would point out, there is nothing wrong with the changes currently happening in our economy. Reach out to an advisor today to make sure your portfolio is moving in the “right” direction.

About the Author

Ted Hanson

Ted Hanson is a Securities Analyst within the Wealth Management Division at Security National Bank. As a securities analyst, he manages client portfolios, analyzes securities and performs daily trading activities. Ted is a graduate from Morningside College with a degree in finance and accounting.