America’s Economy: Fighting Back

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There have been some great numbers showing that the US economy could well be on its way back from the coronavirus pandemic that caused substantial financial loss in many industries.  Thanks to the fact that 300m vaccination shots have been given nationwide (a number that is continuing to increase), a true sense of “back to business” is being felt.

Take a look at the fashion industry for example. For so long people were in Zoom or other online meetings so were not so interested in purchasing new clothing. Marshalls and TJ Maxx encountered a 12 percent increase in sales this quarter and Rent the Runway has reported a demand for crop tops four times what it was in 2019.

WFH is being slowly morphed back into return to the workplace. Large corporations like Bank of America and Morgan Stanley are bringing their workers back, with some even offering return-to-work programs.

Large entertainment events are returning as well as we see more weddings take place. With the ditching of masks and opening of restaurants and other leisure activities, there is a lot of hope for the economy showing signs of recovery.

US Economic Boom Predicted

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The American economy has historically been in far better shape, however, there was a 6 percent growth in Q12021 thanks to stimulus checks and vaccination rollout which led to an uptake in consumer spending. In addition, it is hoped that Biden’s promise of massive new federal investments will continue this trend of growth.

Post-Pandemic Prosperity

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America’s economy seems to be coming back from the pandemic, having recorded its  fastest first-quarter GDP growth in nearly four decades.

Consumer spending is up (thanks to tax credits and stimulus checks).  Hiring is also increasing, even in New York where just a few short months ago it seemed like the pandemic would never end. Moody’s Analytics chief economist Mark Zandi said:

 “I’ve never seen an economy that feels as good as this one today. The economy is booming. It’s busting out all over.”

Further, Oxford Economics predicts a growth of American GDP to average out this year at 7.5%, higher than what we’ve seen for nearly 70 years.

However, there is still great cause for concern given unemployment numbers (which indeed is substantially less than a year ago) given that there are an additional 4 million unemployed Americans than there were in February 2020. To counter this, continued China trade will be required in particular in movies (which accounted for 30 percent of China’s box office sales in 2019) and education (exports support more than 3 million people who work in the industry in America).

Small Businesses in a Pandemic Era

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Small businesses have definitely had a lot to deal with over this past year-and-a-half.  Since March 2020, many have suffered from lockdowns, stay-at-home orders and restricted gatherings. While no-one has managed to avoid challenges during this time, it seems financially that this particular demographic has possibly suffered the most.

According to a recent article  on the subject, the first thing we have to remember anyway is that America’s business demographic is made up of 99.9% small businesses. Of those working in the private sector, a little less than half work for these firms.  Closure of these businesses is currently 34 percent (compared to January of 2020) and San Francisco has been severely impacted with a rate much higher than that of 48%. Experts are now discussing a K-shaped recovery but with these numbers, that could be slowed down as well.

Despite all of this, people’s spirits are still strong and there is much work that is being done to turn this around.  For example, while there is a national Small Business Day held in November, New Jersey had one last month.  NFIB New Jersey (New Jersey’s leading small business association) held its Small Business Day on May 5 2021 and discussed a variety of issues relating to the devastation small businesses have encountered and what they need the state to do.  One action is aid to provide the $1bn lost from New Jersey’s Unemployment Fund since the start of the pandemic.  To do this, liability protection laws must be passed for small business owners and of course, re-opening the economy.

Joe Olivo, NFIB member and a local small business owner further explained:

“I know I am not speaking just for myself when I say that the past 13 months have been among the most challenging I have faced in the 33 years that I have been at the helm of my business. Many of the Executive Orders coming from the Governor have made the cure worse than the disease. Many of our political leaders and the media continue to lump all business together as though we are all multi-national corporations. Fortunately, NFIB provides us a way to collectively voice our opinion regarding legislation that is often detrimental to not just our businesses, but to the millions of people we collectively employ.”

 According to New Jersey’s NFIB State Director, Eileen Kean, the recent Small Business Day provided a “wonderful opportunity for our small business owners to engage with their legislators…[who] need to hear from real people that are being affected by what they do in Trenton.”

Yes, much work still needs to be done but the fact that days like this are being held – in which legislators can really hear what the people need – is a good start.

College, Coronavirus and Consumer Spending

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The coronavirus taking its toll on college education. According to a recent Junior Achievement and Citizens (which polled 2,000 American teenagers), a quarter of high school students have put their college plans on hold, primarily due to lack of financial support from traditional familial sources. Given that tuition fees are extraordinarily oppressive, people are now looking at the worthiness of college vis-à-vis investment in the future.  CEO and President of Junior Achievement, Jack Kosakowski explained:

“We’ve had this ‘college thing’ up on a pedestal. As costs have gone up, it’s forcing people to take a more realistic view.”

At this time, high-schoolers are focusing more on career training.  This is understandable for three reasons:

  1. Exorbitant college fees
  2. Seeing how easy it is to lose a job because of COVID-19, irrespective of a college degree
  3. Having time during COVID-19 to come up with ideas to make money.

Regarding the latter, youngsters have been finding a variety of ways of making money. These include:

  1. bitcoin investment (this has become very attractive with the younger generation which is seeing new ways of expanding their money while gaining more control over it);
  2. vlogging/blogging
  3. video game playing for money (think Playtest Cloud)
  4. online tutoring for other kids.

US Economic Recovery

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Thankfully it looks like the American economy is recovering, as is that of China.  This is having a domino effect on optimism for the global market as IMF’s Managing Director Kristalina Georgieva explained:

“While the outlook has improved overall, prospects are diverging dangerously not only within nations but also across countries and regions. In fact, what we see is a multi-speed recovery, increasingly powered by two engines — the US and China.”

Thanks to vaccinations and more US stimulus money the IMF is predicting economic growth at 5.5 percent for this year. Further, there were over 900,000 jobs added in America in March which is the largest leap since August.  As RSM US Chief Economist Joseph Brusuelas said:

“An American economy about to regain its swagger after a year of pandemic-induced crisis was on full display in the March jobs report.”

Furthermore, according to a recent CNN Report based on IMF predictions:

“At $1.9 trillion, the Biden administration’s new fiscal package is expected to deliver a strong boost to growth in the United States in 2021 and provide sizable positive spillovers to trading partners.”

With the increase of Americans’ purchasing power, this will positively impact international consumer spending as they purchase French fashion, Italian cars, Australian precious metals, etc.

Construction Industry

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America’s construction industry – as we have seen since the start of the pandemic – is thankfully thriving. According to a recent article in For Construction Pros:

“Despite the influence of the COVID-19 pandemic, the December 2020 figure was 5.7% above December 2019’s estimate of $1,410.3 billion. The value of construction in 2020 was $1,429.7 billion, 4.7% above the $1,365.1 billion spent in 2019, led largely by solid growth in the residential construction segment.”

There are many construction projects taking place in America at all times.  Storage, infrastructure and new buildings will always be needed.  Forecasts for 2020-26 in North America indicate that there will be a “healthy growth rate” in construction equipment rental industry which will reach $55bn by 2026. However, this sector was negatively impacted by coronavirus and lockdowns which prevented such companies from operating.

However, Chief Economist at Dodge Data & Analytics, Richard Branch writes:

“While the recovery is underway, the road to full recovery will be long and fraught with potential potholes. After losing an estimated 14% in 2020 to $738 billion, total construction starts will regain just 4% in 2021.”

There will be a rise in single unit home construction starts Branch believes by around 7 percent this year.  But multi-family homes he believes “will pay the price for single family’s gain” as the dollar value of these is predicted to drop by 1 percent this year.

So there is still recovery needed. But overall – and especially compared to other industries – the pandemic has definitely not been the worst for America’s construction industry.

Current Economics of US Oil

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While there are many US industries that are struggling to maintain their normal business activities (if they have not collapsed altogether), there are some which are thriving during this pandemic. One of them is oil which has been seen to make a comeback, at least from an initial superficial glance.

Brent cruse’s barrel price increased to over $60 for the first time in over 12 months.  In addition, cobalt and lithium (among other battery metals) have seen a price increase alongside copper and nickel which has gone up even more. This is definitely good news but according to experts, not yet quite reason to celebrate a return to normal times.

According to forecasts from the American Petroleum Institute, the industry could encounter up to a million loss in jobs by 2022 as well as $9 billion risk to government revenue and American households having to spend $19 billion more on energy by 2030. Some states will be even more negatively impacted such as New Mexico and Wyoming which are likely to not only lose “thousands of industry jobs and access to affordable energy, but also billions in state revenue that could hurt public services, schools, infrastructure and health care.”

Assessing US Economic Recovery

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It is not so simple to pinpoint a trajectory for economic recovery vis-à-vis the continuing impacts of the pandemic.  Jerome Powell of the Fed believes it will depend a lot on how the pandemic plays out and in respect to government regulations.  With new mutations and the resurgence of a more contagious stream, he insists that we remain aware that it is not over yet and people must continue to “stay focused on it as a country and get there. [He added that] the path of the economy continues to depend significantly on the course of the virus. A resurgence in recent months in COVID-19 cases, hospitalisations and deaths is causing great hardships to millions of Americans and is weighing on economic activity and job creation. Overall, economic activity remains below its level before the pandemic and the path ahead remains highly uncertain. As with overall economic activity, the pace of improvement in the labour market has slowed in recent months.”

It’s not easy that the burden has not been shared equally among all  Americans. Those who have suffered the most include low wage owners, African Americans and Hispanics.

Having said that, there is some indication of an economic recovery. There were 22  million jobs lost in March and April of 2020 from the pandemic.  Half of those have come back.  The economy is also only operating at 82 percent capacity. And with the vaccine and additional stimulus checks this could also forge the economic recovery further ahead.