US economy bounces back as voters head to polls

The US economy rebounded in the third quarter, with GDP rising an unprecedented 33.1% at an annualised rate.

Consumer spending and capital investment led the charge as lockdowns were lifted and pent-up demand buoyed sales. No doubt President Trump will make as much political capital as possible from the figures as he tries to overhaul Joe Biden’s lead in the presidential election.

However, although the turnaround looks impressive, the headline number was close to expectations and still leaves the US economy 3.5% below where it was at the end of last year before the virus struck. Consequently, unemployment remains well above pre-Covid levels at 7.9%.

The GDP figures also highlighted the split between the goods and service sectors, with consumer spending on the former now 6.7% above pre-pandemic levels, while services are 7.7% below.

The gap will not be helped by the latest increase in Covid-19 cases, which has led to local restrictions being reinforced with a focus on restaurants and bars. 

We should see further strength in the industrial sector as surveys indicate that stocks of unsold inventory are low and orders have risen – a combination which points to stronger activity in the current quarter.

Looking further ahead though, as pent-up demand fades the economy will need another shot in the arm. The failure of Congress to agree on a fiscal package before the election creates the prospect of a fall off in spending in the new year.

The Federal Reserve meets next week, but it has already delivered significant monetary stimulus and chair Powell has made it clear that another fiscal boost is needed.

The immediate danger of a disputed election next week seems to be fading as the high turnout points to the opinion polls being accurate and delivering a clear result in the presidential race.

The Senate, however, could remain in Republican hands, leaving Biden with the challenge of overcoming the current gridlock in Congress.

Important Information
The contents of this document may not be reproduced or distributed in any manner without prior permission.
This document is intended to be for information purposes only and it is not intended as promotional material in any respect nor is it to be construed as any solicitation and offering to buy or sell any investment products. The views and opinions contained herein are those of the author(s), and do not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. The material is not intended to provide, and should not be relied on for investment advice or recommendation. Any security(ies) mentioned above is for illustrative purpose only, not a recommendation to invest or divest. Opinions stated are valid as of the date of this document and are subject to change without notice. Information herein and information from third party are believed to be reliable, but Schroder Investment Management (Hong Kong) Limited does not warrant its completeness or accuracy.
Investment involves risks. Past performance and any forecasts are not necessarily a guide to future or likely performance. You should remember that the value of investments can go down as well as up and is not guaranteed. You may not get back the full amount invested. Derivatives carry a high degree of risk. Exchange rate changes may cause the value of the overseas investments to rise or fall. If investment returns are not denominated in HKD/USD, US/HK dollar-based investors are exposed to exchange rate fluctuations. Please refer to the relevant offering document including the risk factors for further details.
This material has not been reviewed by the SFC. Issued by Schroder Investment Management (Hong Kong) Limited.