Economic Data Exceeds Expectations

Summer is flying by; my boys go back to school tomorrow. This time of year I am typically getting excited about college and pro football. This year I am tempering my enthusiasm due to the possibility that both postpone or cancel their seasons. Now on to our financial update.

Economic Data

This week the trend of economic data coming in stronger than expected continued with the release of initial jobless claims and the July jobs report. Let’s dive into the numbers. On Thursday initial jobless claims declined to 1.19 million, the lowest number since March. This was much better than the 1.4 million claims that economists had predicted. Then on Friday the July jobs report showed 1.8 million added jobs, surpassing the consensus of 1.48 million. The unemployment rate fell to 10.2% vs expectations of 10.6%. There is still a long way to go for the economy to return to pre-virus levels, but the data continues to show a stronger recovery than expected.

Coronavirus

There is no doubt that recent economic data could have been even better if not for the surge in coronavirus cases. After almost two months of increasing cases we are finally seeing case numbers declining compared to seven days earlier. This trend has really accelerated in the past week. Another positive was although new cases tripled from their peak in the spring, deaths were less than half the levels we saw in the northeast in March and April. Clearly there is still a battle ahead both here and around the world, until a vaccine is approved. Even then there will still be challenges; any progress containing the virus will be a welcome development.

Source: fsinsight.com

Debt-to-GDP

U.S. government debt levels have exploded higher by trillions of dollars in response to the coronavirus. Federal debt just hit a whopping $25 trillion. This puts the debt-to-GDP ratio at over 100% for the first time since World Ward II. When Japan and Italy each went over the 100% debt-to-GDP level, both saw economic growth significantly slow due to the negative consequences which we will detail in a future post.

Congress had to react to the economic calamity that took place in the spring, but at some time in the future politicians in Washington are going to have to address growing debt levels. I know I do not have much confidence that this will happen anytime soon.

Earnings season is winding down and much like economic data most companies posted numbers that were better than expected. This was especially true for tech companies, which make up a large part of our portfolios. Tech stocks responded by moving higher, but at this point a pause would be healthy for the group. We will continue to watch the economic data, as well as the coronavirus trends, as we head into fall and move closer to the election.