The US economy is surging and life is returning to normal. Consumers have healthy balance sheets and inflation is a hot topic. Companies in hard-hit industries are even talking about having a difficult time finding staff. The Fed seems to be seeing a different picture of the economy though and has no intention of tapering pandemic era stimulus until it’s clear that the economy has returned to maximum employment and inflation is running above 2%.
As vaccines continue to be administered the end of the pandemic appears to be at hand. People are resuming normal lives and pent up demand is being unleashed. Consumers are looking forward to a summer filled with travel and congregation with family and friends. Even the Fed is noticing the brighter outlook. The world is opening back up but it probably won’t ever be the same as it was before the Pandemic.
Animal spirits are driving momentum across the economy, especially in capital markets. There’s hundreds of billions of dollars waiting to be invested via vehicles like SPACs. Valuations are extreme, yet they are justified by low interest rates. Meanwhile demand is exceeding supply in industries like semi-conductors, housing and transport. Companies are citing inflationary pressures. But the Fed and Treasury are united behind continued stimulus. “We have the tools to deal with that risk.”
Markets went haywire last week thanks (so the story goes) to some retail traders in a Reddit forum led by a man named Roaring Kitty. It was hard to pay attention to much of anything else in capital markets, but it was also a busy week for earnings. Industrial companies said that demand was “very, very, very strong” and there was an abundance of commentary on price pressures. Jerome Powell isn’t worried though. Game on!
Succinct Summary: Vaccinations are happening around the US and the world. It’s been a little slower than hoped but that may be because of the logistical challenges of administering vaccines at long-term care facilities. We are on the cusp of mass dissemination, and there should be enough capacity to make sure that the population is vaccinated quickly. We’ve lost a year of our lives to COVID but the finish line is (hopefully) in sight. Vaccination should unleash a huge amount of pent up demand. Banks, which started to report this week, have showed that credit performance metrics have been better than anyone dreamed possible in March of 2020. They’re releasing reserves and preparing to return capital to shareholders. Tech spend is also booming.
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The Year in Review: 2020 was an unprecedented year and The Transcript covered the economy throughout all of its twists and turns. Even though China was battling Covid in 2019, no one really knew what was in store for all of us in 2020. Technology, capital markets, and housing were three industries that boomed. While the stimulus was integral, the economic hero of 2020 was the US consumer. Optimism is high that 2021 will be a more normal year.
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Succinct Summary: It was hard to pay attention to anything other than politics last week, but we’re trying our best to keep a focus on the economy. Economic activity appears robust from the earnings reports that we’re reading. Even the hardest-hit industries appear to be performing much better than expected. The tech industries that surged may be normalizing though. We’re getting a strong new surge in Covid cases, but people seem to feel more prepared than they did last spring.
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Succinct Summary: The economy continues its two speed recovery, but there are some signs that growth may be slowing. Even companies that benefitted from the pandemic, like Netflix, are seeing the after-effect of demand that was pulled forward to earlier in the year. Elections will be a key source of uncertainty in the coming weeks. And COVID infections are stubbornly high. But consumers are going crazy at home.
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Succinct Summary: The economy has had a strong but incomplete recovery. The worst seems to be over but there’s still a long way to go. For many industries, this looks like a K shaped recovery.
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Succinct Summary: The economy has improved a lot since the bottom, and headline economic activity is nearing a full recovery. However, the recovery has not been shared equally. There have been a small number of big economic winners and a much larger number of economic losers from COVID. This will help keep the government pushing for more stimulus for a long time. In the past, this stimulus has tended to help the winners even more.
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