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751,000 Americans file for new unemployment benefits

Jeffrey Schulze, ClearBridge director and investment strategist, joins Yahoo Finance’s Kristin Myers to discuss how fewer workers than expected sought new benefits amid the surge COVID-19 cases.

Video Transcript

KRISTIN MYERS: Start off first with some of that positive economic data that we had been seeing today. We're joined now by Jeffrey Schulze, investment strategist director at ClearBridge. Jeff, thank you so much for joining us today.

So a blowout quarter in terms of the numbers for GDP. Wondering what your thoughts are on this report and if your enthusiasm is at all tempered by anything that you saw in the report. Any concerns, especially as we see personal income, for example, with huge declines?

JEFFREY SCHULZE: Yeah, thanks, Kristin, for having me on the program. And it was a blowout report. And it did beat consensus expectations by a point. As expected, you saw consumer spending come in red hot, along with the housing market. Business spending was good as well. So there were some really a lot of holes to poke in that particular report.

But if you look at GDP on a year over year basis, it's still down 2.9%. And more importantly, as you move into the fourth quarter, that toward pace of growth is going to slow. Now, I don't think that we're going to go into a double dip recession because of the confidence measures that you're seeing right now.

If you look at the Conference Board's Consumer Confidence Survey, although it did drop a little bit earlier in the week on both the headline number and the expectations number, these are prints that you generally see in mid to late cycle, not at the very beginning of an economic expansion. The NFIB, which is a small business confidence survey, is one point away from where we were pre-COVID.

So I do think consumers are going to continue to spend. I think businesses remain optimistic in light of, obviously, higher coronavirus cases here in the US.

KRISTIN MYERS: Now we don't have any stimulus, a deal as yet. We're unclear as to when we might get one. It's not going to happen, we know, before the election. And we're now seeing the spikes of coronavirus not just here at home, but also abroad in Europe. Wondering what your view is for the next quarter, particularly in terms of the economic recovery. Is it at all threatened in your mind?

JEFFREY SCHULZE: I think the economic growth is going to slow, but we've reached escape velocity. We'll be able to get through the next quarter without economic stimulus. But regardless of the outcome of the elections, I do think we'll get some sort of stimulus package. The size of that package is going to come down to who wins the White House and, obviously, the composition of Congress.

If you have a Trump presidency and a composition of Congress that's either a Democratic Senate or a Republican Senate, I would imagine a stimulus package somewhere in the $1 to $1 and 1/2 trillion range. If you have a Biden presidency with a Republican Senate, I think it's probably going to be on the smaller end of the equation, probably about $500 to $750 billion.

If you get a blue sweep, we're going to get the largest stimulus package, which will be probably proportional to what you saw at the HEROES Act of $2 to $2 and 1/2 trillion. So I do think we'll get stimulus. It's just the size of that package is going to be determined next week when we get through election day.

KRISTIN MYERS: Jeffrey, I'm hoping you can give us your longer term view. Your note says that you guys are actually a little bit more optimistic than consensus for next year. I'm hoping you can talk us through that a little bit.

JEFFREY SCHULZE: Yeah, we are more optimistic than consensus. I think we're going to get a stimulus package no matter what, but I do, as I mentioned earlier, think that the economy has reached escape velocity. But as you look out on the horizon, there's a very strong possibility that we're going to have a number of different vaccines and commercialization in the US sometime in the first half of next year. That's going to go a long way to boost both consumer and business confidence.

If you look at the personal savings rate right now, it's at 14.1%. In fact, Americans have $1 trillion more in their savings than they did prior to the pandemic. And I think as you get more confidence and people get vaccinated and we go back to some level of normalization, you're going to get some revenge spending or some deferred gratification, where it's going to boost the economy above its long-term average.

And this comes on the back of an inventory restocking cycle and what I call the macro trifecta, which is lower interest rates, a weaker dollar, and lower energy costs, which all have usually been key ingredients for a robust recovery. So I think as you look out on the horizon, there's a lot of things to be positive about.

KRISTIN MYERS: All right, and I know a lot of people are hoping and waiting for that aid deal so they can go out and do a little bit of what you're just describing as that revenge spending. Jeffrey Schulze, investment strategist director at ClearBridge, thanks so much for joining us today.