Despite Historic Increase in GDP, Long Road to Recovery Remains
- Gross domestic product, adjusted for inflation, surged 33.1 percent annualized in Q3 2020, according to the advance estimate from the Bureau of Economic Analysis. While this represented the largest quarterly increase in the post-WWII era, the level of real GDP remained 3.5 percent below the peak seen in Q4 2019. GDP growth was predominantly driven by real personal consumption expenditures (PCE), which contributed 25.3 percentage points to headline GDP. This historic increase in consumer spending was driven by expenditures on services, though spending on durable and nondurable goods also saw impressive increases. Business fixed investment rose by 20.3 percent annualized, the largest increase since Q4 1983. Residential fixed investment increased 59.3 percent annualized, the largest increase in 37 years. Combined, fixed investments contributed 5.0 percentage points to headline GDP. Net exports and government expenditures both were drags on GDP.
- Personal income, adjusted for inflation, rose 0.7 percent in September, according to the Bureau of Economic Analysis. When excluding transfer payments, real personal income rose by 1.0 percent as unemployment-related transfer payments declined in September. Real personal consumption expenditures rose 1.2 percent, five-tenths higher than in August. The personal saving rate fell from 14.8 percent to 14.3 percent. From a year ago, the PCE price index rose 1.4 percent, an acceleration of one-tenth from August, but was held down by year-over-year declines in energy prices. Core PCE prices (excluding food and energy) rose 1.5 percent annually, also an acceleration of one-tenth from August.
- The Conference Board Consumer Confidence Index was relatively unchanged in October, falling just 0.4 points to 100.9. Consumer confidence in the present situation rose 5.7 points, while consumer expectations fell 4.5 points.
- New single-family home sales fell 3.5 percent in September to a seasonally adjusted annualized rate (SAAR) of 959,000 according to the Census Bureau. Sales fell in every region except the West. Year-to-date sales are now up 16.9 percent from the same period in 2019. The inventory of new homes for sale increased for the first time since March, though remains near the lowest level in three years. The months’ supply rose two-tenths to 3.6, just above the record low seen in August. From a year ago, the median sale price increased 3.5 percent.
- The National Association of REALTORS® Pending Home Sales Index, which records contract signings of existing homes and typically leads closings by one to two months, fell 2.2 percent in September to 130.0. Regionally, only the Northeast saw an increase in sales.
- The FHFA Purchase-Only House Price Index, reported on a seasonally adjusted basis, rose 8.0 percent from a year ago in August, an acceleration of 1.5 percentage points from July, and the fastest annual pace of growth since March 2006.
The record quarterly increase in third quarter GDP was close to our expectations. However, the increases in real personal income and spending in September were somewhat above what we had expected, and, when combined with an elevated savings rate, suggests that consumers continue to have the firepower to sustain the recovery. This may lead us to increase our expectations for consumer spending in the fourth quarter. Despite the increases, October consumer confidence remained well below February levels. According to the Conference Board press release, “[t]here is little to suggest that consumers foresee the economy gaining momentum in the final months of 2020, especially with COVID-19 cases on the rise and unemployment still high.” While another nation-wide shutdown appears unlikely, the rise in cases could lead to more localized shutdowns, which would weigh on sentiment and on spending, particularly given the current lack of additional fiscal stimulus. Despite monthly declines for new and pending home sales, both remained historically elevated, suggesting a strong pace of sales in the coming months. Housing construction will have to accelerate in order to support the current pace of new home sales, and any growth in inventories coming online could help limit the current acceleration in home prices.
Economic and Strategic Research Group
October 30, 2020
Opinions, analyses, estimates, forecasts and other views of Fannie Mae's Economic & Strategic Research (ESR) Group included in these materials should not be construed as indicating Fannie Mae's business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the ESR group bases its opinions, analyses, estimates, forecasts and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current or suitable for any particular purpose. Changes in the assumptions or the information underlying these views, including assumptions about the duration and magnitude of shutdowns and social distancing, could produce materially different results. The analyses, opinions, estimates, forecasts and other views published by the ESR group represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.