July 2020 Economic Outlook

By Dennis Pelak

HAWTHORN WOODS, Ill., July 3, 2020 – As we move into the second half of the year, the economy is starting to recover but doing so very slowly.  Let’s review some of the major data points for June.

PMI Index

Markit’s Composite Purchasing Managers Index has continued to recover, rising to 46.8 in mid-June from 37.0 in May. This is well off the low that was set in April. While it still shows the economy is in contraction (below 50.0), there has been a slowdown in the rate of contraction. 

Automotive Sales

According to the Wall Street Journal, major automakers reported sharp drops in second-quarter U.S. vehicle sales, as discounts and 0% financing deals weren’t enough to offset factory and dealership closures from the COVID-19 pandemic.

General Motors Co. reported a 34% drop in second-quarter sales compared with a year earlier, with demand picking up in May and June. Toyota Motor Corp.’s sales fell by about one-third (33%), while Fiat Chrysler Automobiles NV reported a 39% decline.

Employment

Non-farm payrolls increased by a record 4.8 million in June, but that leaves another 15 million people to get back to the employment level before the COVID-19 crisis.

In June, the Bureau of Labor Statistics reported that employment rose by 4.8 million and the unemployment rate fell to 11.1%.

Continued Unemployment Claims in 2020

Continued claims have shown little improvement over the last five weeks. On May 16, continued claims were 20.841 million. There were 19.290 for the week ending June 20 and were 19.231 million on June 13. 

These are seasonally-adjusted numbers, and they have risen since last week.

Weekly unemployment claims are one of the best sources of data for looking at the potential for future economic growth.  These claims represent people who are eligible for unemployment at the state level.

Economic Outlook for Second Half of 2020

Recovery of the economy in the second half of this year will be determined by how well the COVID-19 virus can be contained during the summer and into the Fall. The stock market is clearly getting a bit ahead of itself as it is already up more than 30% from its lows in late March. 

If stronger economic growth fails to materialize, the stock market could see a major correction in the second half of the year, particularly if there is no additional economic stimulus.

Dennis Pelak is a retired Financial Services executive who has studied economics and statistics for more than 40 years. He updates this page monthly with his opinions regarding the economy. He can be reached by email at economics@localnewsreader.com.

By Dennis Pelak

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