GDP Soars in Third Quarter

There is nothing normal about the 2020 recession. Massive nationwide shutdowns of "non-essential" businesses caused real GDP to drop at a 31.4% annual rate in the second quarter, the biggest drop since the 1930s. However, as we expected, a V-shaped recovery is being traced out.

On October 29th, in ten days, we expect a report that says third-quarter real GDP rebounded at a 33.4% annual rate.

We may make some minor adjustments to this forecast when new reports on business investment, inventories, and international trade are released, but the third quarter will still be one of the largest jumps in output the US has ever experienced.

It's important to keep in mind that even this huge V-shaped bounce will leave Q3 real GDP 2.9% lower than it was a year ago. Without the shutdowns, the US would have grown 2.5% versus a year ago. This means the economy will be about 5.3% smaller than it would have been in the absence of COVID-19.

And even with above-trend growth in the year ahead (say 4.5%, annually), the fact that many industries remain highly restricted, while many businesses have declared bankruptcy, means that the 5.3% gap will take time to close. Without full re-opening, the economy will likely take until 2023 to get back to where it would have been otherwise. If we do re-open and don't shut down again, it would happen faster.

That said, the sharp rebound in Q3 is a testament to the underlying strength of the US economy before the shutdowns happened, combined with the seemingly unlimited ingenuity of the American people. Twenty years ago, without the technology we have today, there is no way the US could have rebounded as quickly as it did in the third quarter. Moreover, the US entered this government-mandated recession with the highest incomes and lowest poverty rate we have ever recorded.

Here's how we calculate the good news of an annualized 33.4% rebound in real GDP for Q3:

Consumption: Car and light truck sales rose at a 246% annual rate in Q3 (not a typo!), while "real" (inflation-adjusted) retail sales outside the auto sector grew at a 49.8% annual rate. Spending on services also rebounded, but not quite as sharply. Much of service consumption is related to home occupancy, which didn't drop in Q2 and so didn't require a rebound in Q3. Also, limits remain on restaurants & bars, movie theaters, and other travel-related services. As a result, we estimate that real consumer spending on goods and services, combined, increased at a 38.9% annual rate, adding 26.1 points to the real GDP growth rate (38.9 times the consumption share of GDP, which is 67%, equals 26.1).

Business Investment: Business investment in equipment rebounded sharply in Q3, while investment in intellectual property likely rebounded at a more moderate pace, and commercial construction continued to fall, the latter of which reflects little need for more office space or hotels. Combined, business investment looks like it grew at a 22.4% annual rate, which would add 3.1 points to real GDP growth. (22.5 times the 14% business investment share of GDP equals 3.1).

Home Building: Residential construction revived rapidly in Q3 and has much further to go, with renewed desire for more space in the suburbs and a housing shortage in many places around the country. We estimate growth at a 15% annual rate, which would add 0.6 points to the real GDP growth. (15 times the 4% residential construction share of GDP equals 0.6).

Government: It's hard to translate growth in overall government spending into a GDP effect because when calculating GDP only direct government purchases of goods and services counts. Redistribution (borrowing from our kids to spend today) shows up in other categories. Our best guess is that government purchases, especially for healthcare and PPE rose quickly, just like in Q2. We estimate growth at a 10.7% annual rate, which would add 2.1 points to real GDP growth. (10.7 times the 20% government purchase share of GDP equals 2.1). Because GDP only accounts for spending "today," there is no offset for the deficit and what we are spending from the "future."

Trade: The trade deficit continued to grow in July and August as imports revived faster than exports. At present, we're projecting that net exports will subtract an unusually large 3.1 points from real GDP growth in Q3, although data out next week on the trade deficit in September may alter this estimate, as well as our estimate for overall real GDP.

Inventories: Inventories likely continued to fall in Q3 but not nearly as fast as they did in Q2, adding around 4.6 points to the real GDP growth rate. Yes, we know it seems weird that inventories could keep falling but add to GDP, but that's how the math works out. If inventories decline by less than they did during the previous quarter, that smaller negative ends up adding to (or subtracting less from) GDP growth.

Add it all up, and we get 33.4% annualized real GDP growth for the third quarter. We look for more growth in the quarters ahead, but nothing anywhere close to this pace.
Source: Brian Wesbury, First Trust


Source: Factset

Sincerely,

Fortem Financial
(760) 206-8500
team@fortemfin.com

 


 

Latest News

 

Europe Markets: European stocks and U.S. equity futures r...

European stocks moved higher to start the week on Monday, as investors looked to potential stimulus progress from the U.S. and economic data from China that showed a continued recovery fo...

Read Story

 

Robust China economic data push global shares higher

Shares are higher in Europe after strong gains for most Asian benchmarks following China's report that its economy grew at a nearly 5% annual pace in the last quarter

Read Story

 

How September Retail Sales Stole August's Thunder

The Commerce Department reported that retail sales rose a seasonally adjusted 1.9% last month. But September's strong sales might simply be making up for a weak August.

Read Story

 


Brian Amidei, along with Partners Joseph Romano and Brett D'Orlando have also been named *2014, 2015, 2016, 2017, 2018 Five Star Wealth Managers!

Disclosures:
Awards and recognitions by unaffiliated rating services, companies, and/or publications should not be construed by a client or prospective client as a guarantee that he/she will experience a certain level of results if Fortem is engaged, or continues to be engaged, to provide investment advisory services; nor should they be construed as a current or past endorsement of Fortem or its representatives by any of its clients. Rankings published by magazines and others are generally based on information prepared and/or submitted by the recognized advisor. Awards may not be indicative of one client’s experience or of the Firm’s future performance. Neither Fortem nor the recognized advisor has paid a fee for inclusion on a list, nor purchased any additional material from the award provider. The criteria for each award is listed below:

Five Star Professional Disclosure:
The Five Star Wealth Manager award is based on 10 eligibility and evaluation criteria: 1) Credentialed as an investment advisory representative (IAR) or a registered investment advisor; 2) Actively employed as a credentialed professional in the financial services industry for a minimum of five years; 3) Favorable regulatory and complaint history review; 4) Fulfilled their firm review based on internal firm standards; 5) Accepting new clients; 6) One-year client retention rate; 7) Five-year client retention rate; 8) Non-institutionalized discretionary and/or non-discretionary client assets administered; 9) Number of client households served; and 10) Educational and professional designations. The inclusion of a wealth manager on the Five Star Wealth Manager list should not be construed as an endorsement of the wealth manager by Five Star Professional or the magazine. The award methodology does not evaluate the quality of services provided. Additional information about this award is available at: fivestarprofessional.com/2016FiveStarWealthManagerMethodology.pdf
Fortem Financial 2016. All rights reserved.

Data Sources: News items are based on reports from multiple commonly available international news sources (i.e. wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. Market Data: Based on reported data in WSJ Market Data Center (indexes); U.S. Treasury (Treasury Yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness.

Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. The opinions expressed are solely those of the author, and do not represent those of Fortem Financial, LLC or any of its affiliates. Past performance is no guarantee of future results. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful. Forward looking statements are based on current expectations and assumptions, the economy, and future conditions. As such, forward-looking statements are subject to inherent uncertainty, risks, and changes in circumstance that are difficult to predict. Actual results may differ materially from the anticipated outcomes. Carefully consider investment objectives, risk factors and charges and expenses before investing. Fortem Financial is a registered investment adviser with the SEC. Advisory services are offered through Fortem Financial.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighed index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indices listed are unmanaged and are not available for direct investment.

Fortem Financial

PRIVACY NOTICE REGARDING CLIENT PRIVACY

Fortem Financial Group, LLC, has adopted this policy with recognition that protecting the privacy and security of the non-public personal information we obtain about our customers is an important responsibility.

All financial companies choose how they share your non-public personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your non-public personal information. Even when you are no longer our customer, we will only share your non-public personal information as described in this notice. So, please read this notice carefully to understand what we do.

The types of non-public personal information we collect and share depend on the product or service you have with us. This information can include items such as your Social Security number and income, your account balances and transaction history, and your investment experience and account transactions.

We collect your non-public personal information in a variety of ways. For example, we obtain your non-public personal information when you open an account or give us your income information, tell us about your portfolio or deposit money, or enter into an investment advisory contract. We also collect your non-public personal information from other companies. For example, from the custodians who hold your account assets.

All financial companies need to share customer’s non-public personal information to run their everyday business. Below, we describe the reasons we can share your non-public personal information and whether you can limit this sharing.

We share your non-public personal information for our everyday business purposes such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, report to credit bureaus, to protect the confidentiality or security of your records, or as permitted by law. We may also share your non-public personal information for our own firm’s marketing purposes; so that we can offer our products and services to you.

Federal law gives you the right to limit only sharing non-public personal information about your credit worthiness for our affiliates’ everyday business purposes; sharing non-public personal information about you with our affiliates to market to you; and sharing non-public personal information with non-affiliates to market to you.

We don’t share non-public personal information about your creditworthiness with our affiliates for their everyday business purposes. We don’t share your non-public personal information with our affiliates to market to you. We don’t share your non-public personal information with non-affiliates to market to you. We also don’t share your non-public personal information for joint marketing with other financial companies. State laws and individual companies may give you additional rights to limit sharing.

We share non-public personal information with our parent company affiliate, Focus Financial Partners, Inc, for its internal and external auditing purposes. We also share your non-public personal information with a non-affiliate for the purpose of aggregating it and providing summary information based on this data to our parent company, Focus Financial Partners, Inc.

To protect your non-public personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include computer safeguards and secured files and buildings.

Our policy about obtaining and disclosing non-public personal information may change from time to time. We will provide you notice of any material change to this policy before we implement the change.

If you have questions please call us at 760-206-8500 or go to our website at www.fortemfin.com.

IMPORTANT CONSUMER DISCLOSURE

Fortem Financial Group, LLC ("Fortem Financial" or the "Firm") is a federally registered investment adviser with offices in California. Fortem Financial and its representatives are in compliance with the current registration and notice filing requirements imposed upon federally registered investment advisers by those states in which Fortem Financial maintains clients. Fortem Financial may only transact business in those states in which it is notice filed, or qualifies for an exemption or exclusion from notice filing requirements.

This website is limited to the dissemination of general information regarding the Firm's investment advisory services offered to U.S. residents residing in states where providing such information is not prohibited by applicable law. Accordingly, the publication of Fortem Financial' website on the Internet should not be construed by any consumer and/or prospective client as a solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment, tax or legal advice. Furthermore, the information resulting from the use of any tools or other information on this website should not be construed, in any manner whatsoever, as the receipt of, or a substitute for, personalized individual advice from Fortem Financial. Any subsequent direct communication from Fortem Financial with a prospective client will be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. Fortem Financial does not make any representations as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to this website or incorporated herein, and takes no responsibility therefore. All such information is provided for convenience purposes only and all users thereof should be guided accordingly.

All statements and opinions included on this website are subject to change as economic and market conditions dictate, and do not necessarily represent the views of Fortem Financial or any of their respective affiliates. Past performance may not be indicative of future results and there can be no assurance that any views, outlooks, projections or forward-looking statements will come to pass. Investing involves risk, including the potential loss of principal, and the profitability of any particular investment strategy or product cannot be guaranteed.

Any rating referenced herein may not be representative of any one client's experience. Further, the Firm's receipt of any rating is not indicative of the Firm's future performance. The Charles E. Merrill Circle of Excellence award is granted by Merrill Lynch for outstanding client service and satisfaction. The award is granted based on annual criteria established by Merrill Lynch for its top decile advisors. The Barron's Top 1,200 Financial Advisors rating of the top financial advisors in the United States is based on data provided by participating firms. The following factors are included in the rankings: assets under management, revenue produced for the firm, regulatory record, quality of practice and philanthropic work. Investment performance is not an explicit component. The Five Star Professional award is granted by Five Star Professional and recognizes service professionals who provide quality services to their clients based on data provided by participating firms. The award is granted based on the following ten objective eligibility and evaluation criteria: credentialed as an investment advisory representative (IAR) or a registered investment advisor; actively employed as a credentialed professional in the financial services industry for a minimum of five years; favorable regulatory and complaint history review; fulfilled their firm review based on internal firm standards; accepting new clients; one-year client retention rate; five-year client retention rate; non-institutionalized discretionary and/or non-discretionary client assets administered; number of client households served; and educational and professional designations. Feedback from consumer surveys will augment a regulatory history review. Firms have the option to provide input on award candidates from their firm, regardless of the nomination source. The Palm Springs Life's "40 Under 40" Rising Young Professionals to Watch in the Coachella Valley is based upon nominations from the local business community and selected by the staff of Palm Springs Life.

For information pertaining to the registration status of Fortem Financial, please refer to the Investment Adviser Public Disclosure website, operated by the U.S. Securities and Exchange Commission, at www.adviserinfo.sec.gov., which contains the most recent versions of the Firm's Form ADV disclosure documents.

ACCESS TO THIS WEBSITE IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND WITHOUT ANY WARRANTIES, EXPRESSED OR IMPLIED, REGARDING THE ACCURACY, COMPLETENESS, TIMELINESS, OR RESULTS OBTAINED FROM ANY INFORMATION POSTED ON THIS WEBSITE OR ANY THIRD PARTY WEBSITE REFERENCED HEREIN.