Economic Strength to Shine Through A Slew of Events

The stock market could easily be muted this week ahead of the November 3rd elections and despite a heavy calendar of corporate earnings reports.  Hope for fiscal stimulus may have to wait until after the elections.  Even without a new stimulus bill, the market should get comfort from evidence of strong economic growth in the next couple of weeks.  Q320 Real GDP Growth risks printing above consensus.  And, the Unemployment Benefits Claims data are back on a downtrend.

Consensus looks for Real GDP Growth to surge +31.9% (q/q, saar) in Q320 -- a strong rebound from -31.4% in Q220.  The risk, moreover, is for an even stronger print.  The Atlanta Fed Model's estimate is +35.3%, and there are reasons to think it is too low.  For example, its estimate of 37.4% Real Consumer Spending does not seem high enough, given the surge in September Retail Sales.

The Claims data suggest a continuation of above-trend economic growth in Q420.  California resumed submitting its figures to the Labor Department, including revisions to the prior week's reported figures.  As a result, Initial now show a 56k downward revision to 842k (was 898k) for the week ended October 10 and a further drop to 787k in the latest week (ended October 17).  This is a new low for the move down.

Continuing Claims reflect the downtrend in Initial, falling to 8.373 Mn from a downward-revised 9.397 Mn.  The latest figure is for the week just prior to the October Payroll Survey Week.   Nevertheless, if they stay near this level, they will point to a speedup in October Payrolls.  The relationship between Claims and Payrolls has broken down in the past couple of months.  But, a significant upward revision in Payrolls cannot be ruled out because of this breakdown. 

The Insured Unemployment Rate dropped to 5.7% from a downward-revised 6.4% in the prior week (was 6.8%).  This compares with 8.7% in the September Employment Survey Week, pointing to a drop in the October Unemployment Rate.  Moreover, the official Unemployment Rate has printed below the Insured Rate in each of the past 5 months (see table below).  A sub-5.7% Unemployment Rate would be a political shocker -- except that the October Employment Report will be released on November 6. 

  Insured Unemployment Rate Civilian Unemployment Rate 

Jan   1.2 3.6

Feb     1.2 3.5

Mar   1.2 4.4

Apr 12.4 14.7

May 14.3 13.3

Jun 13.2 11.1

Jul 11.6 10.2

Aug   9.9 8.4

Sep   8.7 7.9

Oct   5.7 na