Macroeconomic Outlook

As we wrap up the third quarter of 2020, we are seeing many encouraging signs that support our outlook for recovery and rise in US Real Gross Domestic Product (GDP) during the second half of this year and into at least 2021. In order to forecast macroeconomic business cycle rise, we typically require that at least five key leading indicators be in rising trends. We now have about twice that number, including (but not limited to):

  • ITR Leading Indicator™
  • ITR Retail Sales Leading Indicator™
  • JP Morgan Global Purchasing Managers Index (PMI)
  • Conference Board’s US Leading Indicator
  • OECD’s US Leading Indicator
  • Bullish signs for the US housing market

If your business moves through the business cycle in a coincident manner with GDP, you should be seeing – or soon experiencing – some recovery in your business. Those who move more closely with the US industrial sector should also be beginning to feel the effects of nascent rise in quarterly US Industrial Production.

If you wait for the macroeconomy to enter a full-fledged recovery, you may fall behind the curve.

This is not to say all is clear ahead for the US economy. The following are downside threats to our forecast for recovering quarterly GDP and industrial activity in the second half of the year:

  • The onset of the fall flu season could lead to additional reopening reversals.
  • Month-to-month momentum in US Total Retail Sales stalled in August.
  • The Federal Reserve’s Weekly Economic Index ticked down slightly for the week of September 5 and again the week of September 12.
  • Oil Prices and US Intermodal Rail Traffic showed some jitters in the first half of September.
  • There is uncertainty regarding unemployment benefits and the possibility of additional fiscal stimulus.

Please note that the above figures are not yet statistically meaningful. They are simply emerging risks of which you should be aware. We will be watching them closely to see if they develop further. If you, like us, look at a lot of data, keep in mind that some volatility is normal. As our own Alex Chausovsky notes in “A Closer Look,” the preponderance of evidence is pointing toward general recovery ahead.

Take advantage of pessimism at the bottom of the business cycle to get ahead of the competition – consider capital expenditures now, while interest rates are relatively low, or consider strategic acquisitions. If you wait for the macroeconomy to enter a full-fledged recovery, you may fall behind the curve.

Make Your Move

Communicate your competitive advantages to your customers to maintain market share during this time of diminished activity levels. As you prepare for next year, consider how you can leverage those advantages, or create new ones, to reach new customers.

Investor Update

Stock prices reached a month-end record high in August and transitioned to Phase B, Accelerating Growth. The stronger-than- normal rise in August suggests it would not be surprising for a dip in stock prices to occur in September, as has been the case in the first half of the month. However, positive trends in leading indicators suggest economic fundamentals are generally firming.

ITR Economics’ Long-Term View

2020: Decline

2021: Recovery and Rise

2022: Growth