Northwood economic outlook: economy is at a crossroad – Midland Daily News

The month of July saw the world economies report on Q2 GDP with most realizing their worst single quarter in modern or recorded history for Q2 2020. It certainly was true for the United States, where our Q2 declined 9.5% from Q1 to Q2, or 32.2% if you extrapolated it on an annualized basis.

However, much of the industrialized world fared worse to much worse in comparing Q2 GDP with the United States. Germany’s GDP declined 10.1%, Italy’s GDP declined 12.4%, France’s GDP declined 13.5%, Spain’s GDP declined 18.1%, while the United Kingdom saw Q2 GDP decline 20.9%, relative to Q1. The Netherlands fared slightly better than the U.S., with a decline in GDP of 8.5%, and South Korea was the shining star in the G-20, coming in at–3.3%. The entire Euro area declined 12.1%.

Positive and negative signs

The U.S. economy saw home mortgage interest rates average roughly 3% throughout July and early August, which proved to be one of the key driving factors for existing U.S. home sales increasing by almost 25% in July. U.S. retail sales were strong again in July while Walmart reported in late July same store sales for Q2 2020 were up 9.3% over last year with e-commerce sales up 97% in Q2 2020 over Q2 2019. The U.S. Conference Board saw its Consumer Confidence Index decline by 5.8% in July, settling at 92.6, down from 98.3 in June. July was a disappointment as the index saw steady and impressive gains in April, May and June.

Current issues

The U.S. economy continues to show signs of a strengthening economic recovery, both domestically as well as in comparison with much of the world. There certainly are bumps in the road to recovery, yet we thought it wise to give you a broad based a picture of the U.S. economy’s performance in July as well a brief snapshot of early August.

1.Tracking COVID-19

Total U.S. deaths attributed to the COVID-19 virus stood at 151,922 by the end of July; up 20% for the month. Total U.S. COVID-19 cases finished the month of July at 4,541,016; up 73.4% for the month. At the end of July, the overall COVID-19 mortality rate was 3.35%; down dramatically from 4.83% at the end of June. The number of COVID-19 tests administered in the U.S. nearly doubled in July to 54.5 million tests since the beginning of the COVID-19 crisis in the U.S. By Aug. 10, U.S. COVID-19 deaths had surpassed 160,000 with U.S. tests surpassing 60 million; more than triple the rate of testing per capita than the next highest economy in the world.

2. Tracking major U.S. stock markets

At the end of July, the DJIA was up 2.8%, the S&P 500 up 5.1%, and the NASDAQ up 4.5%. The NASDAQ closed the month at 10,542.94, an all-time record high, recovering all of its COVID-19 losses and surpassing its old pre-COVID-19 record by almost 1,000 points. We are convinced the S&P 500 and the DJIA will recover their COVID-19 losses and set new records by the end of August or mid-September at the latest.

3. Tracking key U.S. commodities

Crude oil, the price of an ounce of gold, and the price of an ounce of silver increased 32.21%, 11.33% and 29.07% percent, respectively, during the month of July. The price of oil seems to be the star within this commodities group, as it was roughly three months ago that you could not give oil away, with oil selling for a brief period at negative prices on commodity markets across the globe.

4. Tracking key global stock markets

The Japanese NIKKEI 225 Stock Market Index increased only .8% in July, while Japanese GDP did not perform as well as its South Korean neighbors in Q2 but edged out the United States with -7.8% GDP growth in Q2 compared to Q1. As reported earlier, the GDP of the United Kingdom collapsed more than 20%, Q2 over Q1, with the FTSE 100 down 4.4% in July closing at 5,899.76.

5. Tracking key service and manufacturing data

The manufacturing side of the U.S. economy grew in July with the overall ISM PMI Index realizing its third consecutive monthly gain, closing at 54.2%, up 3.04% from 52.6% in June. The index surpassed 50% in June, signaling U.S. manufacturing was no longer in recession. The ISM PMI non-manufacturing or Service Index also realized very impressive gains in April, June and July, closing the month of July at 58.1%, signaling a strong and growing service side of the U.S. economy.

6. Tracking U.S. unemployment

In March, many experts predicted the COVID-19 U.S. unemployment rate would surpass 20%. The unemployment rate reached a peak of 14.7% in April and fell to 10.2% by the end of July. An impressive 10-plus million jobs have been recovered in the United States due to the unexpectedly rapid economic recovery, yet it is important to remember that more than 9 million jobs are still left to be recovered in the private sector alone.

Conclusion

With less than 90 days left before one of the most highly debated and anticipated presidential elections in modern U.S. history, the U.S. economy is at a crossroad. The economy is much stronger than anyone would have predicted it to be at this time, back in March. Further growth and the chance for a V recovery will be highly dependent on the continued loosening of the U.S, economy in a careful and responsible fashion. Americans must continue to wear masks and social distance to give customers confidence to return to the traditional marketplace. We believe the U.S. economy’s GDP growth rate in Q3 could be as high as 25% if the economy continues to open in a responsible fashion with Q4 GDP having similar potential. We hope Americans continue to be responsible when coming in contact with each other, we equally hope politicians will play more responsibly in the political sandbox of the U.S. economy and not weaponize policy for political gain as November draws near.

Dr. Timothy G. Nash chairs The McNair Center for the Advancement of Free Enterprise and Entrepreneurship at Northwood University. He can be reached at tgnash@northwood.edu or 989-837-4129.McNair Center student scholar, Noah Cox contributed research to this publication.