I have always used historical information when making predictions about our economy, it was fun and it was easy, that is until America experienced a global pandemic, the recession that followed, changed everything. With so little precedent to look back on, my article today is the best information I have in a very uncertain world.
Let’s begin with the virus.
The news that the White House had a severe outbreak of the virus should serve as a stark reminder that this pandemic isn’t going away anytime soon. If we can’t control it there, where can it be controlled? We are living in a polarized society with dueling narratives, is it about science when it comes to the coronavirus or is it not? One thing for sure is the path forward is to prevent suffering and to save lives. People are understandably confused about the behaviors we need to adopt and what to let go. For example, should I wear a mask or not?
The virus has continued to wreak havoc on the economy, mid America is now experiencing a rapid rise in Covid 19 cases and the hospitalization rates have increased over the past 30 days. As of today, the first week of October, 39 states are showing increases in the infection rates. The bad news, hospitalizations rates are up, the good news, fewer patients are dying thanks to the knowledge we have gained during the last 8 months in treating the virus and saving lives. The next impact could bring more pain as cold weather arrives along with the seasonal flu, at some point we will be dealing with two viruses at a time when many of us will begin spending extensive time indoors. This is one of my biggest concerns. This is a wait and see situation, I have no crystal ball to predict the spread of the virus.
So what has happened since my last zoom meeting?
Let’s begin with Consumer Confidence, the Consumer Confidence Index increased 15.5 points in September to 101.8. The baseline forecast I predicted in my last zoom meeting was 96.1 and I thought that was a little high, so this increase is significant. This level of confidence on the part of consumers is very encouraging and easily beat the consensus number of 91.4 but even with this strong reaction from consumers, I am concerned about the state of the job market, the increase in infection rates and the absence of fiscal relief for the 11 million unemployed Americans. This will be a drag on what is already a weak economic situation.
The real question for me is, why are Americans so confident and will they remain in this positive frame of mind. This will determine just how long our current expansion will last.
Here is the good news for our dealers, respondents to the September Consumer Confidence survey indicated they were more likely to make big purchases in the months ahead. The share expecting to buy major appliances rose to a seven-month high of 49%, up from 44.9% last month. Those planning to buy a car increased from 10.2% to 11.1%, and even more intended to buy a home. Confidence usually translates to consumer spending, so we track this indicator very closely. I fully expect the appliance business to remain active and robust throughout this pandemic.
The jobs report was out this week and the U.S. economy added 661,000 jobs in September, this number was below economist’s estimate of 800,000, I see this as a sign that the rebound from the springtime recession could be slowing. The unemployment rate fell to 7.9%, but that was mostly due to a sharp decline in the labor force participation rate. While 7.9% is more than double what is was pre-pandemic, it far better than the 14% level of unemployment we reached in April.
It’s interesting, in pre-pandemic days I would have called this a sign of a robust job market. The total, in fact, would have been the best month the U.S. in almost 30 years but the Covid 19 era has changed the benchmarks by which we measure economic statistics.
A normal person would be surprised that a rebound in our economy, during which 11 million jobs were refilled in four months, could be losing steam but what I wanted to see was accelerating gains in the job market, what we have here is not enough for the millions still unemployed. As an example, leisure and hospitality led the gains with 318,000 jobs added but there are still 2.3 million out of work in this sector as restaurants and bars are still in disarray.
Retail was again the bright spot in September with a net addition of 142,400 jobs. Economists see this segment of the economy having significant growth throughout the year and into 2021 as Americans continue to shelter at home and spend money remodeling.
At the moment, the economy remains mostly in an expansion period after a historic slump in the second quarter brought on by the coronavirus-induced shutdown. The Atlanta Fed is predicting GDP growth of nearly 31.8% annualized pace in the third quarter after tumbling 31.4% in Q2 and declined 5% to start the year.
An economic downturn is more likely in Q4 as more business finally start to cut jobs and maybe close operations for good. A similar pattern is happening across dozens of industries, employing of millions of workers.
Like I said, it is rough making predictions in a pandemic, but hang in there, the home goods industry is poised to stay strong throughout this moment in our history.