August Manufacturing Activity and July Construction Spending

KEY DATA: ISM (Manufacturing): +1.8 points; Orders: +6.1 points; Backlogs: +2.8 points/ Construction: +0.1%; Private: +0.6%; Residential: +2.1%

IN A NUTSHELL: “The manufacturing sector is picking up some serious steam and could start pushing housing for the number one driver of growth.”

WHAT IT MEANS:  Some of the latest economic numbers are truly amazing.  The housing sector is flat out flying and now it looks like manufacturing is beginning to follow the same path.  The Institute for Supply Management reported that its index of overall activity rose solidly in August to the highest level in two years.  That may not seem like a long time but it was before the pandemic and after the tax cuts, so we are talking real strength.  And the good news was not just the headline number: The details were just as strong.  New orders are jumping as the recovery spreads.  Even with output ramping up, demand is outstripping the added supply and backlogs are building and inventories are falling.  That bodes well for future production.  There was just one negative number in the report: Payrolls continue to be cut, though the rate of decline is moderating.    

Construction spending edged up in July, but the gain was all in residential activity. Spending on lodging, office, commercial, health care, education, religious and amusement and recreational projects were down.  It was worrisome to see that government spending on major infrastructure projects such as health care, education, public safety, highways and transportation declined. State and local governments just don’t have the money to invest in their future.

IMPLICATIONS: Can housing and manufacturing keep it up?  It has been about a month since the enhanced unemployment checks stopped coming, so we haven’t seen the impact that may be having on consumer spending.  Since there is not much chance that exports, which are way down, will pick up sharply, and given that government spending is being reigned in, we need households to spend like crazy if the economy is to keep the V-shaped recovery going.  There are only so many new homes we can build before the market gets out of hand.  We know what that leads to.  But today we saw that the private sector is not doing a lot of building, outside of housing, while state and local governments are strapped for cash and are hardly in the mood to spend what they don’t have.  I have said since early April that the fourth quarter of this year and the first quarter of next will determine the future condition of the economy.  A second quarter collapse and a third quarter rebound were baked into the cake.  I had assume back in the spring that the government’s willingness to keep both households and businesses on welfare would have run out by now, but as usual, I underestimated the willingness of politicians of all stripes to spend when it suits their purposes.  Once we clear the election, it is likely that most of Washington’s handouts to businesses and households will fade away.  That is why the fourth quarter and first quarter of next year are so critical.  Without the federal government’s largesse, and with unemployment still likely to be extremely high, the ability to sustain growth will depend upon household and business confidence in the future.  So, maybe the most important numbers going forward will be the confidence measures.  As for the markets, happy days are still here and as I keep saying, the trend is your friend until it isn’t.    

July Spending and Income and August Consumer Sentiment

KEY DATA: Consumption: +1.9%; Disposable Income: 0.2%; Wages and Salaries: +1.4%; Prices: +0.3%; Ex-Food and Energy: +0.3%/ Sentiment: +1.6 points

IN A NUTSHELL: “Consumers just keep on consuming and that is great news for growth.”

WHAT IT MEANS:  Households may have hunkered down in early spring, but that started changing dramatically in May and the spending spree continues largely unabated.  Consumption jumped in July, led by strong gains in demand for durables, nondurables and services.  Yes, the spending surge is moderating, but that is only a matter of perspective.  The May and June increases were record highs and the July one turns out to be the tenth largest in the last sixty years.  That’s not too shabby.  Comparing the inflation-adjusted second quarter level of spending to the July level, consumption is rising at a nearly 37% rate this quarter.  We could see a massive GDP growth rate, even if consumption is flat the rest of the quarter.  Can households keep it up?  If you believe the income numbers, that is unclear.  Income rose solidly, led by a surge in wage and salary income.  When you add 1.8 million workers, that is going to happen.  On the other hand, government transfers, i.e., unemployment payments, were down sharply. But the August numbers could be a lot different, as the supplemental unemployment payments disappeared.  We could see incomes fall as a consequence. As for inflation, prices are rising faster, though the gains over the year are still quite modest.  Given the Fed’s new monetary policy strategy, the members would like to see inflation accelerate for quite a few more months as the overall index stands at 1% and excluding food and energy, prices were up only 1.3% over the year.

A second reason that consumption may not keep surging is confidence, or a lack thereof. The University of Michigan’s Consumer Sentiment Index rose modestly in August.  The view of current conditions barely budged, while there was a limited rise in expectations.  The overall index is, as noted in the report, remained “depressed”.   You need both growing income and improving confidence to keep the economy going and right now, that is just not in the cards. As the report notes, “Although strong gains in consumer spending from the 2nd quarter lows can be anticipated, those gains will significantly slow by year-end without some additional fiscal spending programs to diminish the hardships faced by unemployed workers, small businesses, as well as support for state and local governments.”

IMPLICATIONS: We are set up for a really strong third quarter growth number, even though Washington is doing its best to limit that gain.  The makeshift unemployment add-on has limited funding and the failure to come up with an extended supplement program is likely to lower income gains, confidence and spending.  It is an interesting calculus that those politicians up for reelection are using.  They seem to think that reducing government payments of over twenty-six million people is good politics.  That is the number of workers receiving unemployment checks.  In other words, let’s wait another month and see what spending and job gains look like before we declare the V-shaped recovery forecast a winner.  Next Friday we get the August employment report and most economists expect another great one.  I hope that is the case, but either the August or September one is likely to be very disappointing. Since some of the government payments to businesses required limited or no layoffs until October, we could see the bad numbers pushed out a little.  But they are coming. 

July Durable Goods Orders

KEY DATA: Durables: +11.2%; Ex-Transportation: +2.4%; Private (Core) Investment: +1.9% 

IN A NUTSHELL: “The economy is roaring back.”

WHAT IT MEANS: The economy seems to be rebounding at a startlingly robust pace.  The recent economic data have come in above forecasts, especially when it comes to housing, and now we see that businesses are getting back into capital spending mode.  Durable orders soared in July, blasting through expectations.  In a rarity, there was not one major sector that posted a decline in demand.  This report was filled with crazy good numbers.  Orders for vehicles and parts soared to its highest level since this measure was introduced in February 1992.  The government is pitching in as defense capital goods demand jumped 30% and for the first seven months of this year is up over 12% over the same period in 2019. As for businesses, they are spending on capital goods again and the level is back to where it was in February. Interestingly, despite the surge in orders, backlogs are declining, which raises questions about future gains in manufacturing production and hiring.  

IMPLICATIONS: Well, it looks like the National Bureau of Economic Research, the keeper of the business cycle, may have to start thinking about dating the end of the recession.  Yesterday, we got another sign that the housing market is booming when new home sales skyrocketed in Julyand that goes along with other housing data.  Today we saw that investment in big-ticket items is in the stratosphere.  And the stock markets keep hitting new record highs.  It is almost as if there was no pandemic and few firms or households were harmed greatly by the shutdowns and losses of income and demand.  Am I the only one that thinks something strange is going on here? We need to step back from the numbers a little.  Are the reports we are seeing sustainable?  Households don’t seem to think so.  The Conference Board’s August report on consumer confidence fell sharply and the University of Michigan’s Sentiment Index remained at the lowest level in eight years. Optimism about the future is ebbing. Twenty eight million people are still receiving unemployment checks and their payments have been cut sharply. The special hazard pay put in place for critical workers is disappearing, further eroding spending power.  The world economy is weak, at best, and trade is minimal.  And the pandemic is surging along, largely unchecked and with schools and universities reopening, the number of new cases and deaths are likely to start rising again in the new few weeks.  Yet happy days are here again.  So, what is it that businesspeople know that households don’t see?I just don’t get it but as traders like to say, “the trend is your friend”, so just go with it. 

July Existing Home Sales and New Home Pending Sales

KEY DATA: Sales: +24.7%; Over-Year: +8.7%; Prices (Over-Year): +8.5%/ Pending Sales: +5.3%; Over-Year: +32.7%

IN A NUTSHELL: “Home sales and prices are soaring and the end is nowhere in sight.”

WHAT IT MEANS:  The stock market and California are not the only places on fire: Housing is just as hot. The National Association of Realtors reported that existing home sales skyrocketed in July to the highest level in nearly fourteen years.  The surge in demand was across the nation, with gains in the thirty percent range for The Northeast, Midwest and West and over nineteen percent in the South. Homeowners are seeing the strong market and are listing their houses, but with mortgage rates low and demand jumping, the supply of houses, at 3.1 months at current selling rate, is the lowest on record.  That led to a sharp rise in prices, to its highest level on record. Amazing.

And the new home market looks like it is just as strong.  Meyers Research reported that their New Home Pending Sales Index also jumped in July.  New home demand was up sharply in June and it is likely it will post another major rise when the July data come out next Tuesday.   

IMPLICATIONS: Housing is one of the most important sectors in the economy as home construction and sales touch firms in a variety of industries.  When the housing market booms, sales of products related to homes rise significantly as well.  The low mortgage rates have induced people to buy, buy, buy, but the sharply rising prices are a warning that the market may be getting a little ahead of itself.  Still, I will take any positive data that shows people are willing to spend money, especially on big-ticket items.  Looking forward, we need consumers to keep spending.  While those who can and do work from home are mostly doing fine, the number of people unemployed remains in the double-digits.  That raises questions about consumption of nondurable goods and services.  Services are about two-thirds of all household spending and it has been the weakest link.  Since February, total consumption has declined nearly seven percent.  Almost ninety percent of that drop was due to lower spending on services.  So, if you want to know if the consumer is coming back, you have to pay attention to services demand.  And that requires all income classes picking up the pace.  With everything going on, I am not sure how quickly that will occur, especially since we are just getting into the ugliness of the presidential campaign.  That cannot be good for consumer confidence.       

Weekly Jobless Claims, August Philadelphia Fed Manufacturing Index and July Leading Indicators

KEY DATA: Claims: +135,000/ Phila. Fed (Manufacturing): -6.9 points; Orders: -4 points; Employees: -11.1 points/ LEI: +1.4%

IN A NUTSHELL: “The recovery is moving forward, but signs that the pace is moderating are spreading.”

WHAT IT MEANS:  The economy this year has been like the weather in so many areas: If you don’t like it, wait a minute and it will change”.  Are we starting to see another change in the direction of growth?  We just may be.  Consider first the labor markets.  For the first time in five months, the weekly jobless claims number rose. Now let’s not get too crazy about this increase.  In normal times, with normal levels of claims, the numbers bounce around all the time.  And anyone who thinks you can seasonally adjust a data set on a weekly basis without getting some volatility, has not tried to seasonally adjust any number. It really cannot be done.  Still, with the government’s business and household income subsidies running out, it isn’t clear whether those firms that are just hanging on can make it.  It has been expected (at least by me) that by the end of the summer, many firms could throw in the towel, meaning claims rise for while going forward.  It is way too early to say that, but the claims increase is at least a yellow flag.

On the manufacturing front, conditions are still good but they may be moderating.  The Philadelphia Fed’s August manufacturing index declined somewhat more than forecast.  Order growth eased, as did hiring, while backlogs have started to decline.  That said, the sector is still expanding at a decent pace and firms continue to hire more workers.  In addition, firms are able to push through more price increases, though their costs are going up as well.

Looking toward the future, the outlook is good, as long as you put things in perspective.  The Conference Board’s Leading Economic Index increased at a less robust pace in July than it did in May and June.  Notice I said “less robust pace”.  In normal times a 1.4% rise would be viewed as pointing to stronger growth ahead.  But looking out to the fall and winter, it implies that growth will come down from its elevated third quarter pace.  That should surprise no one as the consensus for third quarter GDP is up about twenty percent.  That rate of growth is obviously not sustainable.  Thus, when the report notes that “The LEI suggests that the pace of economic growth will weaken substantially during the final months of 2020”, it is not necessarily saying we are headed into a recession – only a slower growth phase.

IMPLICATIONS: I don’t want to make too much of a deal out of the rise in unemployment claims last week. I would normally just chalk it up to the normal ebb and flow of the data and that is likely what happened. But there appear to be many in Washington who seem to think the economy can stand on its own and doesn’t need any additional stimulus or if it does, it should only get enough to get through the November election.  I don’t believe I am alone when I say that is really questionable thinking.  Most economists believe as I do that more help is needed.  Without it, consumer spending, which is likely to set a record for growth this period, could wind up being quite modest in the fourth quarter.  Firms that have used the government largesse to help pay workers will discover they actually have to make money on their own to cover payroll costs and with consumption lagging, those funds just might not be there.  So, while the economy may look red hot right now, the fire could dim pretty quickly. Of course, if we get a sharp drop in claims next week, all this turns into a “never mind”, which is what I suspect most investors are thinking.       

July Housing Starts and Permits

KEY DATA: Starts: +22.6%; 1-Family: +8.2%; Multi-Family: +58.4%; Permits: +18.8%; 1-Family: +17%; Multi-Family: +22.5% 

IN A NUTSHELL: “When it comes to housing, the recession is well in the rear view mirror.”

WHAT IT MEANS:  Another housing report, another sign that this sector is leading the way back toward a more normal economy.  Actually, there is nothing “normal” about the housing sector.  Instead, we are talking boom times.  Housing starts soared in July, led by an enormous rise in multi-family construction.  This segment tends to have large ups and downs, but a nearly sixty percent jump is well beyond large.  Thus, don’t be surprise if there is a drop in multi-family starts in the August or September numbers.  That would not be a sign of weakness.  As for the key single-family segment, it is strong as well, just not out of control. For the first seven months of this year, total housing starts are up nearly five percent compared to the same period in 2019.  Given everything that has happened, that is amazing.  Regionally, there were increases in excess of thirty percent in both the Northeast and the South, while the Midwest and West posted gains in the six percent range.  Looking forward, permit requests skyrocketed as well, with both the single-family and multi-family segments posted robust gains.  Over the past three months, permits have exceeded starts by nearly six percent, indicating that the sector has more room to grow.

IMPLICATIONS:The reopening of the economy may not be going smoothly everywhere, but it is going incredibly well in the housing sector. Low rates and, at least to some extent the desire to live in less dense locations, have helped drive up demand and home construction is growing to meet that demand.  Since banks don’t usually consider most people on unemployment to be good borrowing risks, the mess in Washington over another stimulus bill may not have nearly as big an impact on housing as it might on consumer goods and services spending.  And with the Fed in no hurry to raise rates, the housing market has a chance to continue leading the way.  As for the economy overall, we have to wait until we get not just the August consumer data but more importantly the September ones as well to determine if a lack of stimulus funds made a major difference.  Third quarter growth is likely to be record setting.  The only issue is how big a record is set.  Housing, by itself could add hugely to growth.  It subtracted about 1.75 percentage points in the second quarter but could twice that in the third, a swing of over five percentage points.  Still,we’ve known for months that third quarter growth was going to be amazing, so we have to start focusing on fourth quarter 2020 and 2021 activity.  Where we go after the summer is up in the air. If Washington does the right thing, 2021 could be really solid.  If not, the recovery could fade. My view is that asking Washington to do the right thing is a bridge too far, so I am less optimistic than other economists.  But, as the saying goes, we shall see

August Home Builders Index and New York Fed Manufacturing Index

KEY DATA: NAHB: +6 points/ Empire State: -13.5 points; Orders: -15.6 points; Expectations: -4.1 points

IN A NUTSHELL: “The housing market is going gangbusters, but the factory recovery may be flattening.”

WHAT IT MEANS:  The data today are in the category of some good news and some questionable news.  We are starting to transition from reopening to recovery and that means some sectors that were soaring will start to settle down to more normal or supportable growth.  Others will continue to pick up steam.  Housing is steaming.  The National Association of Home Builders overall index of market conditions jumped again in August and hit one of the highest levels on record.  Actually, that was true for the sub-indices, including present conditions, future conditions and traffic.  These results support the findings of that the market is strong as prices continue to rise, while listings are coming back, though they are still down from last year.   Both the new and existing housing markets are doing well and that is good news for economic growth going forward.

But then there is manufacturing.  The New York Fed’s Empire State Index of manufacturing activity did a U-turn in early August as all the major indices were down sharply from their July readings. That said, this is a perfect time to revisit my discussion about diffusion indices.  These measure direction, not magnitude and even the directional information can be problematic.  The overall index of activity fell sharply, but it is still positive.  What it is indicating is that the manufacturing sector is consolidating its gains, not necessarily giving them up.  That has kept respondents fairly confident as the expectations index, though down from July’s level, is still pretty solid.  Nevertheless, there were some worrisome signs in this report.  There was a sharp rise in the percent of respondents saying orders declined. It is one thing to stabilize, it is another to lose ground and falling demand, even if the reduction was not great, is not a good sign.   

IMPLICATIONS: Today’s numbers don’t change the economic picture and indeed, the current data may not be a whole lot helpful in understanding where the economy is going if the gridlock in Washington over a new stimulus package continues. The president’s proposals aren’t likely to do much as they are well below what the unemployed had been receiving and they could run out by the end of September.  The payroll tax cuts simply do little. As most economists have argued, like it or not, the stimulus programs have kept large numbers of households and businesses afloat and with the funds being cut or running out, the recovery could start running out of steam.  The longer this goes on, the smaller the third quarter increase will be and the sooner firms that have been hanging on start laying off workers or simply go out of business.  Some firms are doing their best to retain their workers for as long as possible (like until after the election), but the layoffs are coming and a failure to find a way out of the quagmire will only make the ultimately breaking point more devastating.  But this is an election year when playing to the base is the only thing that matters. How cutting unemployment and business payments plays to anyone’s base is beyond my understanding, but politicians have their own bizarre way of thinking.  What I am saying is that the risks to the recovery are to the downside and I am not convinced investors understand that.  Eventually, they just may.         

July Retail Sales, Industrial Production and 2nd Quarter Productivity

KEY DATA: Sales: +1.2%; Ex-Vehicles: +1.9%/ IP: +3%; Manufacturing: +3.4%/ Productivity: +7.3%; Labor Costs: +12.2%

IN A NUTSHELL: “Retail sales gains are moderating and without the massive influx of government welfare payments, it is likely they will continue to flatten.”

WHAT IT MEANS:  The economic data continue to behave like SuperBalls, bouncing around like crazy.  After huge gains in May and June, retail sales settled back to a somewhat more normal level in July.  Sales were less than expected, but the June report was upgraded, so the two months together were close to projections.  Despite a sizeable rise in units sold, the dollar value of vehicle purchases were down. (I assume that was due to a larger percentage of lower-priced vehicles being purchased.)  The change in what we buy was seen in outsized changes in a number of components, especially electronics and appliance stores, which posted a nearly 23% increase.  Work at home is shifting business investment in working environments to household spending on all sorts of things.  As an aside, Amazon Days didn’t happen this year.  The bump normally gotten in July from Amazon’s huge numbers was not in the data.  However, online purchases were still up, implying the Amazon Days effect may not be as important as many believe.  Instead we seem to now have Always Amazon Days

Industrial production jumped again in July as the manufacturing sector continues to recover. Manufacturing activity is up over fifteen percent since the April bottom, but it is still down eight percent from the February level.  Since last July, manufacturing output is off nearly eight percent andyou have to go back to September 2011 to see a level of production this low.The one bright spot was consumer goods output, which is back to where it was in spring 2017.  

Productivity skyrocketed in the second quarter, as firms cut hours worked even faster than they reduced production.  That is hardly anything positive, as the declines which were -38.9% for output and -43% for hours worked, which reflect the massive collapse of the economy.  With companies unable to cut wages (they were actually up sharply), labor costs skyrocketed.  These huge changes are fascinating, but hopefully we will not see them again for a very long time.  But they are not reflective of anything normal, so use them as a measure of the downturn, not a trend in fundamental economic factors.   

IMPLICATIONS: Consumers were happy to get out in the world once the economy started to reopen and they have done that.  The July level of retail sales points to a massive rise in third quarter consumption, assuming households can keep it up.  But our “friends” in Washington seem to be doing everything possible to kill the recovery.  As I have said numerous times and will keep saying until something changes, it has been the governments household and business welfare programs that have supported household and business spending.  With the Senate on vacation (clearly, there isn’t any important work to be done so why not get out of town?), the funds flowing to unemployed workers and supporting businesses are disappearing. The president’s executive orders are not likely to add much to income and the PPP money is being used up.  So, where are the funds to keep retail sales rising going to come from?  Got me. We could begin to see that in the August spending data and if nothing gets done in September, don’t be surprised if there is a weakening not only in consumer demand but in hiring as well.But hey, investors have pixie dust and “I believe” on their side, so don’t fret too much for the markets.  And if something happens, there is always the Fed to step in and insure that our “ free-markets” work well.  By that I mean not go down too much.  Isn’t capitalism great?     

Weekly Jobless Claims and July Import and Export Prices

KEY DATA: Claims: 963,000 (down 228,000)/ Import Prices: +0.7%; Nonfuel: +0.2%; Export Prices: +0.8%; Farm: +1.5% 

IN A NUTSHELL: “Despite the slowing in the reopening process, the labor market continues to stabilize.”

WHAT IT MEANS:  Has the virus resurgence begun to show up in slower economic growth?  That is not yet clear.  Or, maybe we really don’t know what is going on with the data.  Take the weekly jobless claims report.  For the first time since mid-March, initial unemployment claims were below one million.  I guess that is good news, though the number is still almost 4.5 times what it was a year ago.  So we still have a long way to go to get back to anything close to normal.  Continuing claims, which represent people remaining on the rolls, fell as well, but here too, you have to put the number in perspective. Almost 15.5 million people are collecting unemployment checks compared to 1.7 million a year ago.  The recently passed laws covering unemployment payments have extended out the number of weeks that a worker can receive those checks.  Two programs, the Pandemic Emergency Unemployment Compensation and the Extended Benefits programs, provide up to an additional twenty-six weeks of checks and the numbers in those programs are starting to grow.  In other words, while jobs may have started to become more available, they are well below what is needed, as seen by the number of people collecting compensation.

On the inflation front, there were three reports released this week, the Producer Price Index, Consumer Price Index and today the Import and Export Price Indices.  All indicate that inflation is rebounding from the ultra-low levels hit in the spring.  Imports prices, led by the continued rebound in energy costs surged.  However, food and vehicle prices were down, capital goods costs were flat and consumer goods prices rose moderately.  But imports don’t reflect services costs and for consumers, those are soaring, especially health care.  On the export side, farmers are seeing some really large price gains, after four brutal months of declines.  That said, export prices are still down over the year by over three percent, so the agricultural sector has a way to go to get back to where they were last year.

IMPLICATIONS: Should we be worried about what appears to be building inflation pressures?  Not necessarily.  In the spring, many businesses were forced to cut prices as demand disappeared.  Now, with the economy starting to recover, they are taking the opportunity to recover some of those discounts.  In other words, there is no such thing as a free economic rebound.  Prices are rebounding as demand picks up.  That is a good sign as it reflects growing economic activity.Indeed, I would read the inflation data as representing more the state of the economy than any sudden ability of firms to raise prices.  The increases are not likely to last long, especially if the reopenings continue to slow.  One question mark is back-to-school demand, which may look little like previous years. Technology may reign as so many schools are going virtual to start the year, but clothing sales may falter.  That could mess up the retail sales numbers, as the seasonal factor may not be able to adequately handle the temporary change in student needs.  As for investors, you know that insanity is the operative word when people actually thought the Russians perfected a vaccine many months before the rest of the world – and they actually acted on the report.  I don’t think it is time to roll up our sleeves. Even if saner heads ultimately ruled, when the markets react to such wacko reports, you know that things are out of control.  What I don’t see investors understanding is that most of the income flowing into the economy came from the government’s support programs.  But because of gridlock in Washington, they are gone, reduced or running out.  Where consumers and businesses will get replacement funds to buy goods and services or pay workers is anyone’s guess, but investors have decided not to even think about that.  Love that pixie dust.   

July Manufacturing Activity and June Construction Spending

KEY DATA: ISM (Manufacturing): +1.6 points; Orders: +5.1 points; Production: +4.8 points/ Construction: -0.7%; Private Commercial: -1.3%; Private Residential: -1.5% 

IN A NUTSHELL: “Manufacturing is bouncing back but construction activity remains hit or miss.”

WHAT IT MEANS:Manufacturing continues to improve, which is good news for the economy.  The Institute for Supply Management’s Manufacturing index rose solidly again in July and the details were mostly very good.  There were strong gains in orders, and despite a jump in production, backlogs have started to build.  That holds out hope that activity will continue to improve in the next couple of months.  Firms are also beginning to regain pricing power.  About the only negative in the report was the employment index.  While it was up, the level remains in negative territory, meaning that jobs are still being cut, though at a slightly slower pace.  There are few signs that firms are adding lots of new workers and that is a reason to believe the next set of job reports could be disappointing.

Construction spending fell in June, which was not a surprise.  The sharp drop in private residential activity was greater than expected and with the general economy only starting to reopen, nonresidential commercial construction also fell sharply.  Until it is clear where we are going, which could be months given the surge in the virus, don’t expect construction to pick up significantly.  Governments just don’t have the money to spend and businesses are hardly going to expand greatly if they don’t know whether demand will be there to pay off the costs.     

IMPLICATIONS: Given where we ended the second quarter, it is clear that third quarter growth will be huge.  Maybe nowhere near the second quarter decline, but impressive nonetheless.  How impressive, remains a question.  The next economic bailout bill is still to be passed and there are still people waiting for the checks they were supposed to get in the spring and workers who just cannot get on the unemployment rolls despite being unemployed for weeks.  The cut in the unemployment payments created by the political gridlock and miscalculations could show up in spending fairly quickly, but the rebound once the checks go out will likely take a lot longer.  So, August could be an ugly monthunless something happens in Washington soon – like two weeks ago.  Despite the fact that the economy cannot stand on its own, investors will probably continue assuming that Uncle Sam the Candy Man will continue providing everything needed.  And they could be right, at least until the election is over.        

Linking the Economic Environment to Your Business Strategy