12 Aug July 31, 2020
Week in Review
GDP
Second quarter U.S. GDP fell at a record 32.9% annualized rate. First quarter GDP was left unchanged at -5.0%.
Our Take: Everyone knew second quarter GDP was going to be bad and it was. The big question is how quickly it can recover. It is clear, absent any dramatic developments, the Q3 will be positive, but uncertainty remains about the time needed to return to pre-pandemic levels.
The Fed
As expected, the Federal Reserve Open Market Committee (FOMC) left its federal funds rate unchanged at the current range of 0.0%-0.25% and affirmed its commitment to continue asset purchases at current levels. In its statement, the Fed recognized that economic activity and employment picked up following the sharp declines experienced earlier this year but noted both measures remain well below their levels at the beginning of the year. Further, the committee noted that the path of the economy is dependent on the course of the virus and that the health crisis continues to pose considerable risks over the medium term.
Our Take: The Fed remains committed to its support of the U.S. economy. With the lingering impact of the coronavirus on labor market conditions, inflation and growth, the Fed is unlikely to raise rates for the foreseeable future.
Personal Income and Consumption
Personal income fell 1.1% in June, while consumption rose 5.6%.
Our Take: Government support has allowed the consumer to continue to spend despite high levels of unemployment. The initial rounds of stimulus are ending. There has been a great deal of individual savings built, so spending is unlikely to completely collapse if Congress chooses not to renew stimulus programs. However, those savings will not last forever. Spending will suffer eventually if unemployment remains elevated.
Municipals
Data released by the U.S. Commerce Department indicated that sales tax revenues in the second quarter dropped by 12% compared to the first quarter of the year. Sales tax revenue decreased by $54.3 billion, which is the largest drop since records began in 1958 according to Bloomberg.
Our Take: The significant drop in sales tax revenue was expected. Much of the nation was under a stay-at-home order during some or all of the second quarter. Watch for sales tax revenues to stabilize as businesses reopen and consumers return.
All expressions of opinions are subject to change without notice in reaction to shifting market conditions. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities and should not be relied on as financial advice.