A Fast Recovering US Economy
Beset with a global pandemic, a country torn between two very disparate political parties if not ideologies, an unemployment rate that went from a near all-time low (3.5%) to an all-time high (14.7%) in a matter of a couple months, and thousands of businesses either permanently or temporarily closed, it is easy to believe or “feel” that the US economy is not on a quick road to recovery. However, a look at the data shows that while certain sectors (e.g. travel and leisure, restaurants and other service-intensive sectors) continue to struggle, the economy is in fact recovering quite quickly, and it’s being led largely by manufacturing.
On October 29, the Bureau of Economic Analysis released its first read on US GDP for the 3rd quarter. Not surprisingly, GDP increased by a record 33.1%, but then again, this follows the largest GDP decrease on record in the 2nd quarter. Nonetheless, the 3rd quarter performance was basically in-line with economists' estimates and proved that the US economy did in fact come roaring back in the 3rd quarter.
Also, on November 6th the Bureau of Labor Statistics released its report on Nonfarm Payrolls and the Unemployment rate for October. The Bureau reported that the US economy outperformed in October and produced 638K jobs vs expectations for a number closer to 530K. What’s more, the unemployment rate ticked down a full percentage point from the prior month to 6.9% compared to projections for 7.7%. While still not down to pre-pandemic levels, it is clear that jobs have come roaring back from that all-time low unemployment rate of 14.7% hit back in April of this year.
Good news for manufacturers, on November 2nd the Institute for Supply Management (ISM) released its read on US manufacturing activity for October. The number soundly beat economists’ expectations, coming in at 59.3 vs projections of 56.0 (a number above 50 indicates expansion). More importantly, October’s manufacturing performance represents the 6th straight month of expansion for US manufacturing activity.
Corroborating October’s ISM manufacturing measure, on election day the Census Bureau reported that US Factory Orders for September increased 1.1% from August. That index, which is yet another measure of US manufacturing activity, enjoyed its 5th straight monthly increase.
So, we can say, that in spite of an unprecedented downturn in the economy in the 2nd quarter, a worldwide pandemic, a summer full of protesting (and some rioting), and the discomfort and uncertainty associated with an election year, US manufacturing has weathered the storm and is in fact leading our recovery.
One sector in particular that is on fire is construction, and particularly residential building. This is a vital sector in terms of ensuring an economy is healthy and firing on all cylinders, because when consumers are willing to spend on new or existing homes, and when home prices are rising (Case-Schiller Home Price Index reached an all-time high in August 2020), they tend to feel much more content and confident financially than when housing and construction are on the decline. Therefore, with a healthy housing and construction sector (and consumers feeling pretty good financially), the US economy has a powerful tailwind to continue driving future growth.
With regard to Construction Spending, the Census Bureau released its data for September on October 20. Building Permits for Privately-owned housing units were up 5.2 percent in September from August. Single-family authorizations in September were up 7.8 percent above August. Privately-owned Housing Starts in September were up 1.9 percent from the prior month and 11.1 percent above the year-ago (Sept 2019) performance, while single-family housing starts in September were up 8.5 percent above August. See the chart below for monthly trending on building permits, housing starts and completions.
In the ABI chart, we can see that architect billings for commercial projects jumped substantially in September from the August reporting period. ABI Billings jumped to 47.0 from August’s read of 40. Also, contracts jumped to 48.9 from 46 the prior month. What’s perhaps most impressive is that commercial design inquiries increased substantially from August’s 51 to September’s 57. Like the more widely published Industrial Production Index, a number below 50 implies contraction and a number above 50 indicates expansion. So, since these inquiry numbers have been in expansion territory since August, we should begin to see expansion in both contracts and billings in the coming months.
It’s about time we (the United States) experience a comeback in manufacturing. Certainly, the US has experienced a long post-war transition from a manufacturing to a service-based economy, but it is the manufacturing base that is leading the US out of the pandemic-created recession. Manufacturers, in a wide variety of sectors (e.g. - building products, food production/processing, health care, technology, etc.), will continue to see expansion through 2021. And if a COVID-19 vaccine is widely available to consumers in the coming year, the service sector will likely surge, driving more growth through 2021 (and perhaps through 2022).
So, given that we know the US economy is quickly recovering, and that 2021 will experience continued growth, what are you doing from a marketing and strategic standpoint to ensure your company is well positioned to increase sales, profitability and market share? It is now not a question of if the economy recovers, rather it is a statement of fact that the economy is indeed recovering with haste, so it’s now vital that companies and management teams not sit back in “wait and see” mode. Now is the time for planning and decision making. Now is the time to execute and ensure your company enjoys the fruits of America’s post-pandemic comeback.