Moneybeat – Economic upswing

MARY REICHARD, HOST: Coming up next on The World and Everything in It: The Monday Moneybeat.

PENCE: With today’s new GDP numbers, the American economy grew by more than 33 percent in the third quarter, shattering any previous American record. The great American comeback is on.

NICK EICHER, HOST: Let’s talk about that with financial analyst and advisor David Bahnsen. Good morning.

DAVID BAHNSEN, GUEST: Good morning. Good to be with you, Nick.

EICHER: David, this is a number we’ve been eager to see—Gross Domestic Product—and to paraphrase the vice president coming off a record shattering drop in GDP in April, May, and June of this year to see a record shattering rise for July, August, and September. 

By my count, that’s about two-thirds of the way back. What’s good about this GDP report and what’s bad about it?

BAHNSEN: Well, two-thirds of the way back is a lot better than only half of the way back. So it’s all kind of relative. I mean, I think that there has been opportunity for a sort of math lesson for a lot of people. And I don’t mean that sarcastically. I think there is kind of an intuitive thing that can be off. If you hear we were down 31 percent one quarter and up 33 the next, there are a lot of people that might assume they were up two when, of course, in reality you’re going up 33 from a lower number and so you’re still down. 

If you go back, Nick, to where GDP was at the end of the fourth quarter of 2019, we still have three and a half percent to go. So, no matter how you look at it, there’s still some work to do. 

But what this does is the same thing in reverse of what the Q2 number did, is it shows just how preposterous it is to try to evaluate the economy based on a clearly, self-evidently transitory experience and moment. So, there was an artificial drop in Q2 from the lockdown and there was an artificial bounceback and all of those things are in the record books, they matter, they’re there, but really what matters going forward is what it’s going to take to make up the rest of that wood that has to be chopped.

EICHER: It’s really interesting when you plot it on a graph and you look at it. That’s where you see that—and I think a lot of people hear economists say, well, it may or may not be a v-shaped recovery—and that’s a classic kind of v-shape kind of recovery when you look at that kind of a drop and that kind of a rise. And just like we did last week, I can say, you know, you were talking about this 6, 7, 8 months ago.

BAHNSEN: Yes, and if you see where the recovery came from and where it’s being held back, it does reinforce the v-shape narrative for now and I suspect that some of the data going forward will reinforce that kind of Nike symbol that a lot of people talked about or the square root recovery might be a better way to look at it—where now things incline at a lower rate of growth. 

The consumption numbers was through the roof and I’ve said this on our interviews together so many times, I don’t understand anyone being surprised by the American people’s willingness and ability and desire to spend money. So consumption’s doing great. 

The government expenditures are down a little bit. And then the import-export, the trade number ate away at GDP growth. Business investment looked pretty good but it needs to look better. We want to see sustainable cap-ex and so all things considered, the GDP number of last week really reinforced my belief about the economy. Things are on their way back and we have work to do.

EICHER: Here’s a good headline: “U.S. Jobless Claims Fall to Lowest Level Since Start of Coronavirus Pandemic.” I’m reading from the Wall Street Journal. Good for the psychology, feels like we’re making good progress. But let’s dig in a bit: continuing claims dropped into the 7 million range—again from a peak of 25 million—but edging closer to what’d be much more normal, just below 2 million. So, real progress here?

BAHNSEN: Oh, absolutely. And I can’t even imagine where we would be right now without some of the states continuing to do somewhat irrational levels of lockdown. And I do understand—there’s some people that say, well, what do you mean? If we see these new coronavirus cases coming, shouldn’t they be doing more lockdowns? But of course I disagree with that. 

There will be contraction, there will be economic difficulty, as long as there’s COVID out there, from people freely choosing to not go to as many restaurants and restaurants having to hold their capacity at a lower level and things of that nature. 

But restaurants in cities that have a one percent positivity rate only being allowed to open at 25 percent instead of 50, let’s say, that’s a meaningful number. So, I believe that what we have are things going in the right direction and yet we have the capability for them to go even more. And that, right now, is more in the hands of the states and localities than anything else.

EICHER: David Bahnsen, financial analyst and advisor, always great to talk with you. We’ll catch you next week.

BAHNSEN: Yes, Nick. Thanks so much.

(AP Photo/Mark Lennihan, File) In this July 21, 2020 file photo, people walk by the New York Stock Exchange. 

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