The economic recovery is well underway, but its speed and durability are now in question. Fiscal aid is dwindling, flu season is fast approaching, and election uncertainty is rising. After a 10.2% peak-to-trough GDP contraction, we believe the economy will have recouped about two thirds of its output loss at the end of Q3.
What you will learn:
Labor market and consumer spending recoveries have varied across US regions. Perhaps most importantly, regions that suffered the most severe damage received the weakest boost from federal fiscal relief.
Layoffs are easing, but initial claims for jobless benefits are still well over 850,000 a week.
Business sentiment also signals further growth, but at a slower pace – especially in services.
Record low mortgage rates, tight inventory, and pandemic-induced demand will support housing activity.
The Fed will no longer see low unemployment as a reason to hike rates if inflation stays under the 2% target.
We had cautioned that markets were not fully pricing key risks, and we think numerous drivers point to recent volatility continuing in the build-up to the November elections.