A series of economic reports released on Wednesday captured the cross currents in the American economy:
Jobless claims increase
First-time jobless claims rose for the second consecutive week, with the top line increasing to 778,000 for the week ending Nov. 21, up from 742,000 previously, according to the Labor Department. It is clear that the intensification of the pandemic, the pullback by the public and government-mandated lockdowns are combining to cause an increase in first-time claims.
Despite the potential arrival of a mass-produced and distributed vaccine, this economy demands fiscal aid now. Continuing claims eased to 6.07 million, up from 6.37 million, for the week ending Nov. 14, which implies an insured unemployment rate of 4.1%. The number of individuals on some form of unemployment insurance increased by 135,297 to 20.45 million.
Third-quarter GDP remains unchanged
The second estimate of third-quarter gross domestic product from the Commerce Department was unchanged at 33.1%, reflecting a modest change in the composition of growth that featured a slight downward revision in personal consumption to 40.6% and a strong upward revision in gross private investment to 84.9% from 83% previously.
We expect growth in the current quarter to slow to 2.7% and to 2% in the first quarter of the year. Because of increasing infections, hospitalizations, lockdowns and a lack of fiscal aid – all of which are likely to dampen economic activity over the next few months — there appears to be significant downside risk to our forecast. We expect to revise that forecast lower as weak employment and sales activity arrive.
Both exports and imports saw upward revisions to 104.65% and 93.1%, respectively. The drag on growth during the quarter from a decline in government spending was slightly larger at 4.9%, with federal government spending declining at a 6.2% pace, and state and local government spending dropping by 4%. Gross domestic income increased by 25.5%, real final sales rose 25.6% and gross domestic purchases advanced by 36.9%.
Trade balance widens
The U.S. trade gap widened in October as demand for foreign goods and domestically produced exports indicate that the rebound in the economy continued. The top-line shortfall increased to $80.3 billion from $79.4 billion in September, the Commerce Department reported. We expect that the incoming Biden administration will seek to mend fences with the major U.S. trading partners excluding China.
We are bullish on the reopening of the North American manufacturing supply chain next year and a robust increase in commerce across the borders of the three economies. In many respects, the economic narrative next year will revolve around the rebound in the global economy and the reestablishment of global supply chains.
Durable goods orders strong
The preliminary October durable goods report implied solid current and forward-looking outlays on capital expenditures to kick off the third quarter. In our 2021 outlook, we noted that economic resilience would be one of the major themes. Part of that forecast is based on the resilient rebound in outlays on capital expenditures and the forward-looking data inside our RSM US Middle Market Business Index, which points to a noticeable pickup in productivity-enhancing capital expenditures.
The top line advanced 1.3%, while sales of non-defense capital goods excluding aircraft, a proxy for forward-looking cap-ex numbers, advanced 0.7% and is up 32.3% on a three-month average annualized basis, according to the Commerce Department. Shipments of non-defense capital goods excluding aircraft, the proxy for current cap-ex spending, increased 2.3% and is up 27% on a three-month average annualized basis. Inventories increased 0.3% and remain well under control, while demand for computers and electronics advanced 3.1% and fabricated metals increased 2.3%. Defense spending increased 2.3%.
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