State of the Economy

I write just days before the election.  Given how the disputes over voting have created opportunities for all sorts of challenges, chances are the nation will not know its next president for some days, perhaps weeks after the actual vote.

Strange in a high-tech world that the news will arrive later than it once did. If at this moment, no one can know who will occupy the White House or control either house of Congress, one thing is certain: There will be no new policy initiatives for some time.  That lack of policy distraction makes this early November Vested discussion an ideal time to consider the state of the U.S. economy at present.

In the debates leading up to this election, the Democratic side insisted on describing the economy in terms of weakness.  Words like “shaky” and “soft” got a lot of play. The Republicans insisted that the recovery was strong and “v-shaped.”  Biden use the k-shaped but that letter is simply too complicated.  Instead such alphabetic gymnastics, a look at the run of news so far reveals truth on both sides of this “debate.” As Trump and Pence were at pains to make clear, the economy has shown a powerful recovery momentum.  As Biden and Harris insisted, it is far less robust than before the pandemic and the lockdowns and quarantines brought by it.

Jobs, as always, constitute the single best indicator.  As of September, the latest month for which data are available, unemployment stood at 7.9 percent of the workforce, high by any standard and more than double the rate last February before the pandemic began to work its evil magic on the economy. 

“Shaky” may misstate this reality, but no fair-minded person would describe today’s jobs market as strong.  At the same time, the rebound from last spring can only be described as remarkable.

Since April, the Labor Department reports, the economy has created well over 11 million jobs, most in retail and hospitality, the areas hardest hit by the earlier shutdowns and quarantines, but also some 700,000 in manufacturing.  Unemployment has dropped by almost half from April’s rate of 14.7 percent.   To be sure, job creation in September slowed from earlier months, coming in with a 661,000 increase in payrolls, compared to an average of 2.7 million new jobs a month during the previous four months, but that earlier pace was unprecedented and bound to slow.  Even at September’s slowed pace, the economy would produce almost 8 million new jobs in a year, more than triple the best year of the last 20 and more than double the best year of the booming 1990s.  At this pace of improvement, the unemployment rate would fall to its record, pre-pandemic lows by next spring.

Partly as a reflection of this powerful jobs growth, consumer spending has rebounded at an impressive rate from the period of lockdowns and quarantines. 

The Commerce Department reports that retail sales have risen 33 percent from the lows of April so that even considering the losses this past spring sales levels in September, the most recent month for which data are available, are almost 5.5 percent above levels of September 2019.  Still more impressive, households, while stepping up their spending during this time, have also built up their savings, putting aside in August, the most recent month for which data are available, some 14.1 percent of their after-tax income, money that could support robust future spending.

Housing, if anything has shown still more resiliency.  American households have shown remarkable eagerness to put money into a new home, a sign of an equally remarkable confidence in the future during these troubled times.  Of course, the lockdowns and quarantines crushed buying and building last spring.  Housing sales by April had fallen some 26 percent below January levels and new home construction had fallen about 31 percent.  But since, Americans have increased their pace of home buying some 68 percent, and starts on the construction of new residences have risen some 46 percent.  Much of this surge reflects a spring back from the pressures of the pandemic, but some reflects the need for a more fundamental catchup as home buying and building had lagged new family formation for some time before the pandemic did its economic damage.  Housing sales and starts now exceed pre-pandemic levels.

Business plans for new capital spending show an even more remarkable confidence in the face of this health emergency.  According to the Commerce Department, civilian business orders for new capital equipment jumped some 32 percent between last April and this past September, the most recent period for which there are data.  That is 75 percent at an annual rate.  To be sure, much of this surge has come from the airlines, which had canceled just about every order last March and April when it looked for a while as if no one would ever fly again and many airlines would go under.  Though airlines are part of the economy and should be counted, the picture is much tamer once the data are purged of this effect.  Absent commercial aircraft orders, the contracts for new capital equipment have risen some 11 percent during this time of economic re-opening.  That is still an impressive 23 percent annual rate and surely a record.  But still, things were hit so hard last spring that capital goods orders remain some 15 percent below year-ago levels.

So, yes, both parties have spoken the truth from a certain perspective even as they have also deceived by willfully ignoring other important perspectives – the Republicans for underplaying the fact that the economy is far from its former levels of prosperity, the Democrats for ignoring the power of this recovery.  Aside from matters or truth and falsehood, there can be little doubt that the U.S. economy, though less robust than it was at the start of this year, is going into the last months or 2020 with a considerable growth momentum that will help whoever wins this election look good in the early months of this next presidency.


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