US Economic Performance

According to the IMF, it is anticipated that America’s economy is on track to fare better than that of Canada, Germany and Japan.  Predicted contraction rates are:

  • America: 4.4 percent
  • Japan: 5.3 percent
  • Germany: 6 percent
  • UAE: 6.6 percent
  • Canada: 7.1 percent
  • France: 9.8 percent
  • UK: 9.8 percent

It is thought that the “macroeconomic good fortune” of the United States can be attributed to Washington’s spring stimulus. Plus, America does not have to rely on exports for its growth since such sales only account for 12 percent of US GDP.  This is pretty low when you look at the 32 percent in Canada, 47 percent in Germany and 18 percent in Japan. According to Moody’s Analytics Mark Zandi the greater flexibility of America’s labor market helps as:

 “Americans are more willing to adopt new technologies, to move for a job, and [to] make big changes in how they live and work.”

This is good news for the US economy.

Investments in Society

Investments in ideas and startups is great.  But when the investments seek to benefit society at large, that is even better.  That is what American private investment firm Bain Capital is currently in the process of doing.

The firm – one of the largest multi-asset alternative investment entities in the world – has recently raised $800m in new capital in an attempt to support businesses that are working for the greater good.  The company’s impact investment section based in Boston – Bain Capital Double Impact – is focusing on the creation of environmental, governmental and societal benefits.

Approximately 12 portfolio firms have so far been backed under this program.

Economic Indicators: A Time for Optimism?

According to recent data from the US Bureau of Economic Analysis, there was  an increase in GDP for the Third Quarter of 2020.  This number was 33.1 percent but should not be viewed in isolation since the Second Quarter encountered a 31.4 percent decline. This is indicative of a hopeful strong start to the V-shaped economic recovery.

Also in optimistic economic news, the unemployment numbers are dropping.  In fact, the numbers show that they are at the lowest since March, when the coronavirus pandemic began.    With a PMI (Purchasing Managers Index) number of 59.3 (and that being the 6th consecutive number over 50, 50 being deemed an expansive number), things are starting to look up.

There is still much more to be done.  Many believe the stimulus packages are inadequate and that until there is a vaccine against the coronavirus and industries across the board have the capacity to resume business activities, the tragic economic problems will remain. But these figures are encouraging.

Finally We’re Saving Money!

With all the negative economic and financial consequences and hardships of the coronavirus pandemic worldwide, shockingly Americans seem to be saving money.  Not all Americans of course (those who are out of work are having a terrible time of it) but many others are, quite simply because a lot of expenses are down.

The Northwestern Mutual research that has been published has shown that on average, from this time last year, there has been a 10% spike in personal savings.  In 2019 the average savings figure was $59,737  and today it is $65,900. None of this money relates to retirement.

Furthermore, according to FRED Economic Data, the average amount people are saving escalated to nearly 40% in April.  Since then it has been around 20% each month but that is compared to an approximate rate of 7.5% before the pandemic hit.

With approximately 37% of respondents reporting to be “feeling financially secure” these numbers are historically very impressive.

Economic Recovery? Are We Getting There?

During the first coronavirus wave in the spring, approximately 22 million Americans had no work.  While a couple of months after that saw somewhat of an economic rehabilitation (thanks to record low interest rates and stimulus money) with the second wave things are plummeting further than the initial pandemic attack.  According to High Frequency Economics Chief US Economist Rubeela Faroqi said:

“The layoffs are an additional headwind in an already weak labor market. As long as the virus isn’t contained, this is going to be an ongoing phenomenon.”

Businesses are being forced to reduce costs as demand for services in many industries is weakening. Consumer spending on goods on the other hand is increasing. People are eating and drinking more (short-term) and appliances (longer-term). Personal spending has increased (by about a percentage) and consumer confidence readings has expanded a little too. Between June and August there was a 2.1 percent jump in residential construction employment.

Still, there are way too many Americans still filing for unemployment.  According to the Jobs Report put out by the US Labor Department, what was witnessed in September in labor market gain, is now beginning to dwindle with only an additional 661,000 jobs added in the  month.  August for example, saw an additional 1.5 million jobs.

Personal income fell in August and the growth in consumer spending was slower than it had been.

So it seems like the messages we are receiving are not straightforward at all and coming to any conclusion regarding the economic recovery is hard to measure.

Economic Implications of COVID-19

COVID-19 has – and continues to have – a huge impact on America’s economy.  A team from the BBVA Research has published its Q3 2020 Economic Outlook.  Led by Nethaniel Karp, chief BBVA  economist, the results found that the coronavirus has actually brought to the forefront previously concealed troubles in the economy.  Indeed, it is believed that what we are now dealing with is potentially the worst recession since World War II.

The 2020 growth baseline has been maintained at -5.1 percent and 3.5 percent in 2021.  And with no signs of the virus coming to a halt or a vaccine being found any time soon, there is no real sign that the economy will recover either.  Some parts of the economy continue to reopen but there are many that remain shuttered.  Many individuals are still concerned about venturing out which also doesn’t help the economy.

Nonetheless whatever kind of level of return to normal activity there is will be helpful. In addition, some US states will fare better than others depending on their level of infection and their willingness to come out and re-enter active life.

Coronavirus and US Consumer Confidence

Shockingly consumer confidence in the US economy is on the up according to the Consumer Confidence Index.  In fact, it is highest since it has been in nearly 10 years.  Economists are also surprised by this figure. 

Bloomberg economists put the index at 90.5 but it was actually substantially higher at 98.1. According to Conference Board Senior Director Lynn Franco:

“The re-opening of the economy and relative improvement in unemployment claims helped improve consumers’ assessment of current conditions. Looking ahead, consumers are less pessimistic about the short-term outlook, but do not foresee a significant pickup in economic activity. Faced with an uncertain and uneven path to recovery, and a potential COVID-19 resurgence, it’s too soon to say that consumers have turned the corner and are ready to begin spending at pre-pandemic levels.”

Another source of optimism is the White House’s call to bosses to make a  “Pledge to America’s Workers,” in an effort to work toward the creation of more jobs and strengthening of the economy.  To date – according to the White House – over 430 companies have signed it. A Press Release stated:

“The Coronavirus pandemic has highlighted the need to build and expand high-quality pathways that will lead to good jobs and rewarding careers for all Americans, especially those most affected by this crisis. The Trump Administration remains committed to supporting the millions of workers who need assistance right now while building a resilient, agile workforce for the future.”

How Long will it Really Take for the Economy to Bounce Back

In our last piece we spoke about how some finance experts believe that the American economy is bouncing back ahead of schedule.  But now we have other experts predicting that it is going to be an extremely long haul and that the next 10 years will see the country recovering.

An analysis by the Congressional Budget Office indicating that a reduction in economic output in America over the next decade will reach $7.9 trillion.  That damage – for now leaving aside inflation costs – will translate to $15.7 trillion.  The CBO did however add a caveat, pointing out the huge level of uncertainty and unknown surrounding the pandemic.

Capital Economics Group Chief Economist Neil Shearing said:

“While the slump in output caused by the virus seems to have bottomed out, the recovery is likely to be slow going and uneven. Most economies are still likely to be below their pre-virus paths of GDP by the end of our central forecast horizon in 2022,” 

He gave three reasons for this:

  1. Tremendous Loss: We tend to forget – as we see the economy recovering – that so much output was lost during lockdown.
  2. Consumer Spending Predictions: these remain unclear from high frequency data we are receiving.
  3. Reopening Worries: Governments and policy makers are still trying to figure out the best way to re-open, “shift[ing their decisions] from crisis mode to recovery.”

Another issue to consider – as pointed out by a recent Bloomberg analysis – is that while businesses are beginning to re-open, given that this is within a context of rising COVID-19 cases, panic is mounting and this will likely negatively impact the economic recovery as well.

Re-Opening of the US Economy

Last month the re-opening began. Throughout the country different states began opening their economies for business along with certain guidelines.  Nonetheless there are some concerns about the timing with some experts warning against the potential of catalyzing a second wave and thus an even greater spike in re-infection and economic hardship.