August 17, 2020 – After solid job growth and robust consumer spending readings in May and June, the U.S. economy was cruising along at a decent speed of recovery. Incoming economic data for the month of July, however, showed that the economy decelerated with the speed bump of a surge in COVID-19 cases across wide swaths of the country. Job growth decelerated to a gain of 1.8 million jobs, down from the 4.8 million jobs added in June. A decline in consumer confidence was even more concerning, as more consumers became worried about future economic conditions. Real-time data provided by Opportunity Insights showed nearly flat spending growth throughout the month of July.
Following the sharp 32.9 percent (annualized) contraction in GDP growth in the second quarter, we expect GDP growth to accelerate to a 27.9 percent annualized pace in Q3 and an additional 8.8 percent in Q4. However, considerable uncertainty remains about growth in the second half of this year as expiring enhanced unemployment insurance benefits are set to run out at the same time that several other stimulus programs have run their course. This month’s upward revisions to our economic outlook represent both a better understanding of the depth of the contraction in Q2 as well as our updated assessment for a slightly faster rebound in business investment. In addition, trade and inventory building are making solid contributions to the GDP with the return of global demand. We expect GDP to contract 4 percent in 2020 before rising 4.9 percent in 2021.
- Activity appears to have slowed in July
- Stronger GDP growth expected in the second half of the year
- Services spending lags this recovery
- No further stimulus is assumed