Economic Outlook – 4 October 2020


  • The release of employment data for the month of Septem­ber showed ongoing, albeit decelerating progress in the labor market recovery. Indeed, 661,000 payroll jobs were added last month, down from 1.5 million in August. Overall, 51.5% of non-farm payrolls lost since the pandemic be­gan have been recovered. The unemployment rate fell from 8.4% to 7.9% in September, a welcome improvement, but a markedly slower pace than in previous months. More concerning, the drop was due in large part to a pullback in the labor force participation rate rather than strength in job growth.
  • The theme of a stalling labor market recovery was also borne out in the jobless claims data. Indeed, new filings for unemployment benefits have held stubbornly close to the 900,000 per week mark since the end of August, signaling that businesses continue to lay off workers at an elevated rate. While continuing claims have trended lower over the past few weeks, they remain well above pre-crisis levels.
  • Unfortunately, as the USD$600/week federal unemployment top-up expired at the end of July, many people saw their income take a big hit in August. In fact, a 52.0% decline in unemployment benefits resulted in personal income falling by 2.7% month-on-month in August. While per­sonal spending continued to make up lost ground, advanc­ing by 1.0% on the month, the decline in incomes poses a downside risk to the recovery. What is more, spending on durable goods, which powered the early rebound in con­sumption, is showing signs of fatigue, while the recovery in services spending is also slowing.
  • The Index registered a worse-than-expected 0.6 point retreat to 55.4, pointing to a slower pace of expansion in the manufacturing sector. The details of the report showed a recovery that remains uneven, with a slew of industries continuing to contend with sluggish demand.
  • New vehicles sales soared by 7.6% month-on-month in September to 16.3 million units. Along­side home sales, auto sales are one of the few economic indicators to have exhibited a “V-shaped” recovery and are now within 2.5% of their pre-crisis level from February.
  • US Secretary of the Treasury Steven Mnuchin and Speaker of the House of Representatives Nancy Pelosi moved closer to agreement on a fifth economic rescue package but were not able to bridge the remaining gap in the two proposals. Mnuchin offered a plan that with a price tag totaling USD$1.6 trillion in additional spending to offset the economic drag from the pandemic while Pelosi’s offer stands at USD$2.2 trillion. After the two officials failed to reach agreement on a plan, the House voted to approve the USD$2.2 trillion, but the Senate is unlikely to follow suit.
  • The Real Clear Politics average of US presidential polls showed former Vice President Joe Biden’s lead over President Donald Trump ticking up to 7.2% nationally from 6.6% last week while his lead in the battleground states of Arizona, Florida, Michigan, North Carolina, Pennsylvania and Wisconsin edged down to 3.5% from 3.6%. Biden’s odds of election gained after Tuesday’s chaotic debate and stand at 61.3% last week against Trump’s 39.3% odds of reelection, according to the Real Clear Politics average of betting odds. The vice presidential candidates are scheduled to debate next Tuesday in Salt Lake City, Utah.
  • The large-cap indexes broke a string of four weekly losses and moved higher, although gains were more robust among small-caps. Most sectors within the S&P 500 Index recorded modest positive returns, with the exception of energy stocks, which added to their sharp recent declines. The week rounded out the third quarter, which saw healthy returns for all the major benchmarks. September was the first month since March to register declines.
  • The 10-year Treasury note yield ended Thursday at 0.68%, up from 0.66% last Friday. However, yields fluctuated Friday morning as investors digested the disappointing jobs report and developing news surrounding President Trump’s positive coronavirus test.


  • The September flash annual consumer price index was -0.3 % year-on-year, and below expectations, compared to 0.2 % in the previous month. This was the first time headline inflation fell below zero since 2016. Core inflation was 0.2 % compared to 0.4 % the previous month, and also below expectations. Of all the main categories, only food, alcohol, and tobacco saw a higher year-on-year change this month compared to last.
  • France, Germany, Italy, and Spain saw headline (harmonised) inflation rates of 0.0%, -0.4%, -0.9%, and -0.6% year-on-year respectively in May. The largest one-month year-on-year falls in September were observed in Italy (-0.4%) and Germany (-0.3%). In all of these countries, headline inflation remains at or below the 10th percentile of the post-2010 distribution.
  • Shares in Europe rebounded as investors snapped up beaten-down stocks, especially in the financials sector. News that President Trump and his wife had tested positive for COVID-19 eroded some of the market’s gains. In local currency terms, the pan-European STOXX Europe 600 Index ended the week 2.02% higher, with major indexes also posting gains. Germany’s Xetra DAX Index rose 1.76%, France’s CAC 40 gained 2.01%, and Italy’s FTSE MIB climbed 1.96%.


  • The Times newspaper reported that unidentified officials said that EU and UK negotiators had found common ground for a trade deal. An EU official, however, dismissed this claim as “UK spin.” Later, EU sources cited by Reuters said that areas of disagreement remained and that the talks would continue next week and until a 15-16 October EU leaders’ meeting. As negotiators met, UK members of Parliament approved a draft law to create an internal market once the post-Brexit transition ends in December. This bill contains clauses that would override sections of the withdrawal accord agreed to last year, prompting the European Commission to take legal action against the UK for infringing on these terms.
  • Many more British companies reported a fall in sales over the past three months than experienced an upswing, despite the lifting of lockdown restrictions for most parts of the economy, according to the British Chambers of Commerce. Economic conditions remained exceptionally weak in the third quarter,” BCC economist Suren Thiru said. The BCC’s quarterly economic survey (the largest of its kind in Britain) showed that 46.0% of firms surveyed reported that sales had fallen over the quarter, compared with 73.0% who reported a decline in the second quarter. Just 27.0% of the 6,410 businesses surveyed between 24 August and 14 September reported higher sales than three months earlier.
  • British factory activity grew for a fourth month in a row in September, though more slowly than in August, and the sector cut the fewest jobs since before the COVID-19 lockdown. The IHS Markit/CIPS manufacturing Purchasing Managers’ Index (PMI) came in at 54.1. That was down a touch from a preliminary reading of 54.3 and below August’s two-and-a-half-year high of 55.2, but well above the 50.0 threshold denoting growth. “Output and new orders increased as new work intakes improved from both domestic and overseas markets,” IHS Markit said, pointing to more companies reopening after the lockdown and staff returning to work from temporary layoffs. Britain’s economy is recovering from its COVID-19 lockdown more quickly than predicted by the Bank of England and other forecasters, although it probably remains as much as 10.0% smaller than before the pandemic, BoE Governor Andrew Bailey has said.


  • China’s purchasing managers’ index (PMI) readings for September underscored the country’s strong recovery after being the first to tame the coronavirus. The private Caixin survey showed that manufacturing PMI remained at a high level, boosted by new export orders. An index for smaller enterprises came in above 50, the first time it landed in expansionary territory since May. Positive news also arrived on the services front, which has recovered more slowly than manufacturing since the pandemic: The business activity index for nonmanufacturing came in at 55.9, its strongest level since November 2013.
  • Looking ahead, high-frequency domestic travel data will be in focus as analysts try to gauge consumer sentiment during China’s Golden Week holiday, which began on 1 October and lasts until 8 October. Domestic tourism is expected to surge as coronavirus outbreaks in other countries keep a lid on overseas travel. Golden Week also marks a peak online shopping season, which should give further clues to the strength of Chinese consumer confidence.

Sources: T. Rowe Price, Reuters, MFS Investment Management, Danske Bank, TD Economics, M. Cassar Derjavets.