October Is Make Or Break For The Economic Recovery

Consumer Confidence The index for consumer confidence surged by the most in 17 years in September, rising from 86.3 to 101.8, but we have to put this improvement in perspective. This gauge was at 132.6 in February before the pandemic. I’m surprised we are seeing any improvement given the end […]

Consumer Confidence

The index for consumer confidence surged by the most in 17 years in September, rising from 86.3 to 101.8, but we have to put this improvement in perspective. This gauge was at 132.6 in February before the pandemic. I’m surprised we are seeing any improvement given the end of enhanced unemployment benefits, continued job losses and recent increase in virus cases. My suspicion is that these factors are weighing on sentiment in October.

Pending Homes Sales

Home sales continued to soar on the coattails of mortgage rates that are below 3%. The index of pending home sales rose 8.8% in August and was up 24.2% over the past year. This is clearly making up for the collapse in sales during March, April and May, but it is still a very robust number recovering to pre-pandemic levels. We should not expect this rate of improvement to continue in the fall, as the labor market is weakening, supply is limited and we are in the early innings of a second wave of the pandemic.

Personal Income and Spending

Real disposable income, which is inflation-adjusted and after tax, declined 3.5% in August, while the growth rate in real consumer spending fell to just 0.7%. These numbers were still being bolstered by the enhanced unemployment benefits provided by President Trump’s Lost Wages Assistance plan, which gave those who qualified an extra $300 per week, yet income still declined. Consumers had to tap savings to keep spending.

September’s numbers for income and spending, which will be reported at the end of October, will suffer from the end of all assistance to the more than 26 million unemployed. An outright decline in spending is a possibility, which will further slow the labor market recovery. The rising daily new case count of coronavirus is another headwind to spending, because it will force some states to slow or reverse their reopening process and lead some consumers to cut back on spending activities. There is evidence this is already starting to happen with the recent re-closure of all cinemas by Regis nationwide, resulting in the loss of 45,000 more jobs.

Unemployment Claims

The improvement in weekly initial jobless claims has stalled, as we had 837,000 new filers last week through states and more than 650,000 through federal programs. Total initial claims were unchanged from the prior week at an unadjusted 1.44 million. The number of workers who are continuing to receive some form of unemployment assistance rose by 484,000 to an unadjusted 26.5 million. Given the decleration in the rate of job creation (or recovery) in combination with new layoff announcements, it is possible that we will start losing jobs on a net basis in the fourth quarter.

The Jobs Report

The economy added just 661,000 payroll jobs in September, which was far less than the 859,000 expected. The unemployment rate fell from 8.4% to 7.9%, but that was due to the labor force participation rate falling to 61.4%. Average hourly earnings rose a mere 0.1%. Permanent job losses rose by 345,000 to 3.8 million, as women are leaving the workforce at nearly double the rate of men. This is likely due to childcare obligations with many students being forced to learn at home and online.


The month of October is make or break for the economic recovery. We are in the grips a of second wave of coronavirus, because we never implemented an intelligent nationwide strategy to contain it before reopening the economy. Therefore, businesses are again shuttering their doors and several states are being forced to stall or reverse their reopening process. Consumers are not willing to return to normal spending and activity levels until they feel safe, and it is clear they do not yet.

Therefore, it will cost even more money to bridge the gap between now and when the economy can reopen safely. The hope is that an effective vaccine is produced, available and accepted by the public, which will allow for that reopening, but there are no guarantees on that front. Another round of fiscal stimulus is a given, but the question is whether it will come before the election or at the beginning of the new year. My suspicion is that we won’t see additional stimulus until the new year, which means that the prospect of another contraction in economic activity in the fourth quarter is a real possibility.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Lawrence Fuller is the Managing Director of Fuller Asset Management, a Registered Investment Adviser. This post is for informational purposes only. There are risks involved with investing including loss of principal. Lawrence Fuller makes no explicit or implicit guarantee with respect to performance or the outcome of any investment or projections made by him or Fuller Asset Management. There is no guarantee that the goals of the strategies discussed by will be met. Information or opinions expressed may change without notice, and should not be considered recommendations to buy or sell any particular security.

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