Reinhart Week in Review by Madison Investments 10.29.2021


Q3 GDP

Third quarter GDP grew at a 2.0% annualized real rate according to the report issued by the Bureau of Economic Analysis (BEA). Final sales (GDP less inventory changes) fell 0.1%. Slowing inventory drawdowns added over two percentage points to growth while net exports subtracted 1.1. Government consumption increased 0.8%.

Our Take: GDP growth was disappointing relative to expectations. Bottlenecks and shortages were a big reason why. For example, the automotive sector alone accounted for a reduction of 2.39 percentage points from growth according to the BEA. The data makes it clear that 3Q GDP growth would have been higher if there had been more goods available to buy. Growth is likely to pick up in the fourth quarter as supply chains are mended but still faces the headwind of consumers’ reduced purchasing power as a result of falling income and savings.

INCOME AND CONSUMPTION

Personal income fell 1.0% in September while spending increased 0.6%. The savings rate fell from 9.2% to 7.5%.

Our Take: Incomes fell dramatically as pandemic-related benefits ended. Spending rose despite lower incomes as consumers dipped into their savings. Unfortunately, the savings rate, which reached unprecedented heights due to massive stimulus, is now at lows not seen since December 2019. Basically, pandemic aid has run its course and, barring any additional stimulus, earned incomes will have to rise to support continued spending.

DURABLE GOODS

Durable goods orders fell 0.4% in September.

Our Take: The transportation sector led the decline, due primarily to the much-publicized supply chain issues. Motor vehicle orders fell 2.9% while commercial aircraft orders dropped 28%. Orders for non-defense capital goods excluding aircraft rose 0.8%, signaling that demand for goods remains strong despite the pandemic.

MUNICIPALS

During a meeting with reporters, New Jersey Governor Phil Murphy indicated that his administration is making plans for debt repayment. Additional details will likely be released after a meeting with state Treasury officials on October 29.

Our Take: New Jersey borrowed $4.2 billion during the pandemic as uncertainty and projected revenue losses loomed. However, the state has experienced higher than expected tax revenue which has led to a $10 billion budget surplus. With the additional tax revenue, the state finds itself in a more stable financial position and should be able to decrease its borrowing costs, potentially retiring higher-cost debt.

“Madison” and/or “Madison Investments” is the unifying tradename of Madison Investment Holdings, Inc., Madison Asset Management, LLC (“MAM”), and Madison Investment Advisors, LLC (“MIA”), which also includes the Madison Scottsdale office. MAM and MIA are registered as investment advisers with the U.S. Securities and Exchange Commission. Madison Funds are distributed by MFD Distributor, LLC. MFD Distributor, LLC is registered with the U.S. Securities and Exchange Commission as a broker-dealer and is a member firm of the Financial Industry Regulatory Authority. The home office for each firm listed above is 550 Science Drive, Madison, WI 53711. Madison’s toll-free number is 800-767-0300.

Any performance data shown represents past performance. Past performance is no guarantee of future results.

Non-deposit investment products are not federally insured, involve investment risk, may lose value and are not obligations of, or guaranteed by, any financial institution. Investment returns and principal value will fluctuate.

This website is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.

“Madison” and/or “Madison Investments” is the unifying tradename of Madison Investment Holdings, Inc., Madison Asset Management, LLC (“MAM”), and Madison Investment Advisors, LLC (“MIA”), which also includes the Madison Scottsdale office. MAM and MIA are registered as investment advisers with the U.S. Securities and Exchange Commission. Madison Funds are distributed by MFD Distributor, LLC. MFD Distributor, LLC is registered with the U.S. Securities and Exchange Commission as a broker-dealer and is a member firm of the Financial Industry Regulatory Authority. The home office for each firm listed above is 550 Science Drive, Madison, WI 53711. Madison’s toll-free number is 800-767-0300.
Any performance data shown represents past performance. Past performance is no guarantee of future results.
Non-deposit investment products are not federally insured, involve investment risk, may lose value and are not obligations of, or guaranteed by, any financial institution. Investment returns and principal value will fluctuate.
This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.
Although the information in this report has been obtained from sources that the firm believes to be reliable, we do not guarantee its accuracy, and any such information may be incomplete or condensed. All opinions included in this report constitute the firm’s judgment as of the date of this report and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.