September 2020 Economic Review

And Now for the Tricky Part…

The U.S. economy has shown considerable strength since contracting by one-third in the second quarter earlier this year. Consumer spending, accounting for roughly two-thirds of GDP, remains solid following May’s record surge in retail sales. Buoyed by low mortgage rates and urban flight, the housing market saw record sales this summer while the labor market also continues to mend, reclaiming nearly half of the 22 million jobs lost in March and April.

Despite these encouraging developments, COVID-19 has left lasting scars on small businesses, restaurants, and the travel industry. Until a vaccine or immunity to the virus develops, it will be difficult to bring many of these jobs back. When temporary layoffs become permanent, years spent learning the necessary skills and earning the trust of an employer are lost. The tricky part will be keeping the unemployed afloat and engaged until the virus is largely eradicated.

While Congress debates the size of and need for another stimulus package, the Federal Reserve continues to fine-tune its message. Monetary policy is likely to remain accommodative for the next few years through large scale asset purchases and forward guidance regarding the Federal Fund Target Rate. Chair Jerome Powell recently outlined the Fed’s new inflation framework, allowing its target rate to stay lower for longer even if the labor market heats up once again. The hope is that continued monetary and fiscal support will allow displaced businesses and employees to bridge the gap between changing consumer preferences and the end of the pandemic. Although the U.S. economy has made remarkable strides in the past few months, there is still much work to be done facing this once in a century event.

Treasury Yields
Maturity 9/8/20 8/7/20 Change
3-Month 0.113% 0.089% 0.024%
6-Month 0.122% 0.104% 0.018%
1-Year 0.132% 0.124% 0.008%
2-Year  0.141% 0.129% 0.012%
3-Year  0.165% 0.141% 0.024%
5-Year 0.271% 0.231% 0.040%
10-Year  0.684% 0.564% 0.120%
30-Year  1.424% 1.234% 0.190%

Agency Yields
Maturity 9/4/20 8/7/20 Change
3-Month 0.111% 0.089% 0.022%
6-Month 0.137% 0.143% -0.006%
1-Year 0.141% 0.137% 0.004%
2-Year  0.192% 0.179% 0.013%
3-Year  0.249% 0.235% 0.014%
5-Year  0.449% 0.409% 0.040%
Commercial Paper Yields (A-1/P-1)
Maturity 9/8/20 8/7/20 Change
1-Month 0.120% 0.120% 0.000%
3-Month 0.170% 0.160% 0.010%
6-Month  0.200% 0.220% -0.020%
9-Month 0.270% 0.230% 0.040%
Current Economic Releases
Data Period Value
GDP QoQ Q2 ’20 -31.70%
U.S. Unemployment    Aug ’20 8.40%
ISM Manufacturing    Aug ’20 56.00
PPI YoY    Jul ’20 -1.80%
CPI YoY   Jul ’20 1.00%
Fed Funds Target   September 8, 2020 0.00% – 0.25%

Source: Bloomberg
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