3 signs the US economy roared in October and started to leave the Delta wave behind

Ben WinckOct 27, 2021, 01:00 IST

Patrons leave as others wait for a table at Tiki Bar on Manhattan's Upper West Side, Monday, May 17, 2021, in New York.Kathy Willens/AP Photo

Several signs suggest the US recovery is accelerating again as the Delta wave fades, UBS economists said.
Americans' spending is rebounding, factories are solving backlogs, and businesses are hiring faster.

Temperatures are dropping across the US, but in one crucial way, it's feeling a lot more like summer.

The US economy is booming once more after the Delta wave slowed the recovery through August and September. The comeback through October is "far outpacing" the progress seen the month before, UBS economists said in a Monday note.

The degree of the rebound is also extraordinary. Such month-over-month improvements have only happened about 20% of the time historically, the team led by Ajit Agrawal said.

The pickup comes from gains across the board. The Delta wave continued to fade, and daily case counts are now the lowest they've been since late July. The plunge in virus cases led to Americans spending more, with UBS forecasting that sales "picked up substantially" in October. Filings for unemployment benefits have steadily declined through the month. And while the country remains mired in a supply-chain mess, companies are working around the clock to solve massive backlogs.

The signs all point to a stronger recovery heading into the end of the year. Here are the three trends revealing just how much the recovery picked up in October, according to UBS.

1. Spending is rebounding everywhere

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Among the most encouraging signs is a healthy bounce in spending. Personal consumption expenditures — a popular measure of Americans' spending — likely improved "substantially" in October, UBS said. With consumer spending accounting for 70% of US economic activity, a pickup would broadly aid the recovery.

Credit-card data suggests strong growth in sales of goods, particularly in the electronics, merchandise, and home renovation sectors. The bank expects retail sales to climb 0.2% in October. That would place sales just above record highs and mark a third straight monthly gain.

The stronger spending isn't just on goods. Service spending, which is more affected by the virus, likely grew in September and probably grew even faster through October, the team said. Spending rebounded most at arts and entertainment, healthcare, and air travel businesses. While spending at restaurants and hotels was mixed, the bank still expects sales to shift further toward services as virus cases decline further.

Among the most encouraging signs is a healthy bounce in spending. Personal consumption expenditures — a popular measure of Americans' spending — likely improved substantially in October, UBS said. With consumer spending accounting for 70% of US economic activity, a pickup would broadly aid the recovery.

2. Factories are sorting out their backlogs

REUTERS/Alexandre Meneghini

Stronger spending is a good sign for the recovery. Yet Americans' massive spending has ran into global supply shortages in recent months. That mismatch helped keep inflation at decade-highs.

October likely marked a turnaround for the problem, UBS said.

Industrial production broadly bounced back in October after slowing the month prior, the team said. The largest improvements showed up in auto production, goods manufacturing, utilities, and gasoline production. Exports are also trending higher and could break from a months-long trend of flat output, the team added.

The rosier outlook suggests the worst of the global supply-chain crisis could be behind the US. Port logjams, materials bottlenecks, and factory blackouts in China all slammed supply in the US through early fall. UBS's latest projections suggest the shortages will ease into the holiday season.

The team isn't alone. Economists at Jefferies made a similar forecast earlier in October, saying in a note that "we may already be witnessing the worst" of the supply-chain mess.

Stronger spending is a good sign for the recovery. Yet Americans' massive spending has ran into global supply shortages in recent months. That mismatch helped keep inflation at decade-highs.

October likely marked a turnaround for the problem, UBS said.

The team isn't alone. Economists at Jefferies made a similar forecast earlier in October, saying in a note that we may already be witnessing the worst of the supply-chain mess.

3. The labor market is rebounding again

Employers manned booths with banners promoting their companies benefits, free logo branded swag and salary pay scales and in some cases recruitment bonuses in order to entice job applicants to approach their booths during the Lee County Area Job Fair in Tupelo, Miss., Tuesday, Oct. 12, 2021. Rogelio V. Solis/AP Photo

The labor market remains far from healed, but October should mark a turning point for US hiring, UBS said.

The pickups in consumer spending and industrial production should power much stronger job creation, according to the team. The bank estimates 631,000 payrolls were added in October, well above the consensus forecast of 390,000 added jobs.

Such a reading would also mark a major improvement from the disappointing job creation seen over the last two months. The Delta wave limited August growth to 366,000 payrolls, more than halving the gain seen in July. September showed the recovery slipping further with an addition of just 194,000 jobs.

The UBS forecast suggests the Delta wave's negative impact ended in October, and that the labor market's recovery will strengthen into 2022.