October Surprise May Be The Economy

Published Friday, October 9, 2020, 8:45 p.m. EST

The computer model devised by the Atlanta Federal Reserve to predict economic growth in real time is forecasting the economy is growing 50% faster than what's expected by two independent surveys of economic experts. The latest consensus forecast of 10 leading economists polled monthly by Blue Chip Economics is for a growth of 24% in the fourth quarter of 2020 versus.

The GDPNow model is an algorithm created by the staff at the Atlanta Fed to predict the current quarter's final rate of growth in U.S. gross domestic product (GDP) in real-time, based on recent trends. So far, trends are good indeed.

The 60 economists surveyed in mid-September by The Wall Street Journal predicted the fourth-quarter of 2020 growth rate will come in at 23.9%.

With both the Blue Chip and WSJ experts recently predicting a fourth-quarter rate of growth of 24% and the GDPNow model much more optimistic, key fundamentals are signaling strength, which may mean an economic surprise is under way.

The newly released survey of purchasing managers at large corporations shows the manufacturing economy, which contributes 11% of the total U.S. GDP, was back in the normal range, at 55.4.

Moreover, the services industry, which contributes 89% of U.S. economic growth, is also booming. With the overall index at 57.8 and the new orders subindex at 61.5, the data supports an optimistic view.

The Standard & Poor's 500 stock index closed Friday at 3,477.13, a gain of +0.88% from Thursday, and +3.77%from a week ago. The index is +43.38% off its March 23rd bear market low.

The S&P 500 saw its second straight week of gains and its biggest weekly gain since July. Stock prices have swung wildly since the coronavirus crisis started in March and volatility is to be expected in the months ahead.

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