Myles Zyblock, Dynamic Funds’ Chief Investment Strategist, offered the following insights around the U.S. economy this week:

U.S. Economy: Q3 GDP and Beyond

The world’s largest economy is in recovery mode. U.S. consumer spending has made an impressive comeback, manufacturing activity has firmed, and the stabilization in international markets is supporting trade. The second-quarter GDP collapse is likely to be followed by a sharp bounce higher, upwards of +25% annualized, when Q3 data is reported later this week.

The economic expansion is expected to stretch into 2021. The gathering momentum across the private sector is being supported by ongoing government stimulus. The combination of excess productive capacity and elevated personal savings rates points to the potential for above-trend economic growth, say close to 4%, over the coming calendar year.

COVID-19 is the wildcard. The key economic risk, in our opinion, is not the upcoming U.S. election. It is how the renewed spread from the coronavirus across many states feeds into behavior over the winter months. At this stage, we do not see it offering enough of a headwind to short-circuit the budding recovery, but it’s something which will require ongoing monitoring.

The Consumer is Making a Comeback

Core retail sales have more than recovered all that was lost during the early days of the pandemic. On a year-over-year basis, retail sales expanded by 9.1% in September which was the fastest pace of growth recorded since this series came into existence in 1993.

The consumer is being helped by an improving labor market. The unemployment rate has dropped to 7.9% from its peak level of 14.7% reached in April. Close to 11.5 million of the 22.1 million jobs initially lost in the pandemic have been restored. While it still has a long way to go, the labor market has made up a significant amount of lost ground over the past few months.

Trade Activity has Started to Mend

Trade was hit hard in the initial stages of the coronavirus pandemic. Exports fell by a whopping 33% and imports declined by 19% from February through to May. Both have started to recover. Firming global end-market demand has lifted exports, which are up by 21% from the May low. Imports have rallied by a respectable 20% since May, buoyed by strengthening domestic demand.

A better tone to trade signifies a recovering global economy and should help further support U.S. corporate earnings given that a growing share, now 21%, of those earnings are sourced from abroad. As a side note, the foreign exposure of S&P 500 earnings is estimated at a much higher 35-40% given that the index is dominated by large multi-national companies.

Government Activity is White Hot

According to the monthly Treasury statement, U.S. federal outlays for fiscal year-to-date have surpassed $3.6 trillion dollars. This represents an increase of about $1.2 trillion over the same period a year ago. This unprecedented spending surge has helped push the Federal Government’s deficit for 2020 to $3.1 trillion, or 16% of GDP. And the year’s not over.

Admittedly, government support has been a critical bridge for the private sector which has suffered staggering job and income losses. At the same time, it is pushing gross federal debt as a % of GDP above 100%, a level which surpasses the debt load carried as a result of WWII.

Wrapping It Up

  • The second quarter was one of the weakest quarters for U.S. GDP growth recorded in the past 100 years. However, a new recovery has begun. Growth has resumed for many indicators across the consumer, manufacturing and trade sectors. This is occurring alongside the ongoing support of government policy stimulus.
  • Q3 GDP is going to be released on Thursday, October 29th. The economics community expects growth of close to +30% on an annualized basis. GDP growth is likely to remain positive beyond the third quarter, albeit at a much slower pace.
  • The key economic risk, in our opinion, is not the upcoming U.S. election. Rather, it is how the renewed spread from the coronavirus feeds through into economic activity. At this stage, we do not see it as offering enough of a headwind to short-circuit the budding recovery.

(End of Myles Zyblock commentary)

New Containment Measures Enacted as Cases Rise, Markets Decline

As case counts continue to rise, new containment measures were announced in the past week in renewed efforts to mitigate the spread of COVID-19:

  • The measures announced yesterday remain in line with the base-case scenario, which calls for the use of more targeted restrictions rather than a return to the total lockdown of early 2020.
  • The new European measures are similar to those announced by the Quebec government earlier in October: four weeks of closures of restaurants, bars, cinemas, gyms; restrictions on gatherings; while keeping most businesses and schools open. The silver lining is that this approach appears to have had some success in the province as cases have since stabilized.
  • Markets are likely to remain hesitant until a date can be put on the arrival of a permanent solution to the pandemic. There is no way to know for sure when that will be, but recent news surrounding vaccine research remains generally positive as evidenced by the increased likelihood of a vaccine being available by the end of Q1-2021.

Weekly Update – By The Numbers

North America Friday Close Weekly Change Weekly % Change YTD % Change
Canada – S&P TSX Composite 15,581 -723 -4.43% -8.69%
USA – Dow Jones Industrial Average 26,502 -1,834 -6.47% -7.13%
USA – S&P 500 3,270 -195 -5.63% 1.21%
USA – NASDAQ 10,912 -636 -5.51% 21.61%
Gold Futures (USD) $1,878.80 -$24.60 -1.29% 23.61%
Crude Oil Futures (USD) $35.72 -$4.06 -10.21% -41.64%
CAD/USD Exchange Rate € 0.7505 -€ 0.0110 -1.44% -2.53%
Europe / Asia Friday Close Weekly Change Weekly % Change YTD % Change
MSCI World Index 2,293 -138 -5.68% -2.76%
Switzerland – Euro Stoxx 50 2,958 -241 -7.53% -21.08%
England – FTSE 100 5,577 -283 -4.83% -26.19%
France – CAC 40 4,594 -316 -6.44% -23.15%
Germany – DAX Performance Index 11,556 -1,090 -8.62% -12.78%
Japan – Nikkei 225 22,977 -540 -2.30% -2.87%
China – Shanghai Composite Index 3,225 -53 -1.62% 5.74%
CAD/EURO Exchange Rate € 0.6441 € 0.0018 0.28% -6.16%
Fixed Income Friday Close Weekly Change Weekly % Change YTD % Change
10-Year Bond Yield (in %) 0.8600 0.0190 2.26% -55.18%


Source: Yahoo! Finance,, National Bank Investments, Dynamic Funds

This information is provided for general information purposes only. It does not constitute professional advice. Please contact a professional about your specific needs before taking any action.