Closing down a $20 trillion economy in full gear seems to be a problematic undertaking in and of itself. But, unfortunately, restarting the enormous machine has proven much more difficult. A year ago, the government brought the country to a halt in the hopes of slowing the spread of a completely unknown foe. Instead, this virus produced a terrible epidemic whose width and depth were difficult to quantify at the time.
Halted all non-essentials; there will be no more restaurants or bars. There will be no more concerts or plays. There were no large crowds, nor were there any tiny crowds. Thousands of local companies were forced to close their doors as big-box stores absorbed those consumers. Those circumstances lasted for the majority of March and April as Covid-19 carved a devastating gash through America.
Then comes the restart. The United States slowly reopened in May, then surged over the summer. A stunning 31.4 percent decrease in GDP in the first quarter transformed into a 33.4 percent bounce in the July-September period. Both figures were unparalleled in post-World War II America
However, when summer gave way to fall, the virus reappeared with a fury, and activity dwindled until the turbulent year 2020. So, as the World Health Organization marks the first anniversary of its pandemic proclamation on Thursday, the central question of many people’s minds is a familiar refrain: Are we there yet? Unfortunately, the answer is no, but we’re getting there.
James McCann, Aberdeen Standard Investments, said, “The recovery so far has been pretty impressive, actually.” However, “There’s a good way to go yet. In those parts of the economy that are still suffering from Covid distortions, we still see activity depressed.” Further to Mc, “We’re increasingly very optimistic about the ability of the economy to recover quite robustly from here,” McCann added.
Jefferies, which publishes a weekly assessment of where the economy is relative to pre-Covid levels, provides one answer to the issue of how near. In a socially distant mask-wearing society, the company employs high-frequency data indicators to assess retail foot and online traffic, job postings, restaurant bookings, aircraft activity, traffic congestion, mortgage applications, and industrial productivity. The economy was 85 percent of where it was a year ago as of this week. While it sounds very fantastic on its own, the better news is that with Covid cases rising at the slowest rate of the pandemic and vaccinations currently reporting roughly 2.2 million issues per day, things are only going to get better. “We’re going to grow considerably from here,” said Aneta Markowska, Jefferies’ senior financial economist. “The momentum is strong, and it will only grow stronger as we go into the spring months.”
Indeed, early-year growth that was projected to be weak or non-existent suddenly appears to be robust. The Atlanta Fed’s GDPNow tracker, which analyzes incoming data to forecast quarterly growth, currently forecasts a gain of 8.4 percent in Q1, down from a high of 10 percent a week or two ago but still well above expectations. If that is correct, it will be the highest quarterly growth rate in the United States since the fourth quarter of 1984, excluding the outlier of last year’s third quarter.
Economists spent a significant amount of time in 2020 debating the form of the rebound. The responses varied from extreme optimism to the bizarre – a Nike “swoosh”-shaped hypothesis was famous for a period – to the pessimism that the recovery would take a long time and increase income disparity. Finally, the “V” with its fast rebound and the “K” with its implications of a two-speed recovery that left many sectors of society behind were the two most favored conclusions. An economy that is expected to expand at a 6 percent -7 percent annual rate and is expected to be back to pre-pandemic levels by the summer surely qualifies as a V. However, the imbalances toward the lower end of the spectrum, notably those who previously worked in the hospitality and leisure sectors, imply a K, albeit, in such an otherwise aggressive recovery, should probably draw the bottom half of the letter shorter than the top.
“We’re still at the forgiveness of the virus, so the economy is still bifurcated,” said Liz Ann Sonders, chief investment strategist at Charles Schwab. “If you do not own an asset, you are obviously on the losing end of the spectrum. That gap might continue to grow enormously.” That story concerning asset prices and inequality should ring a bell. It’s a replay of what happened after the 2008 financial crisis when public policy was geared toward raising equities and corporate bonds while doing nothing to aid working-class people who didn’t have large share portfolios to pad.
The longest bull market followed the financial crisis in Wall Street history; this time, the Dow Jones Industrial Average has risen more than 70% after a brief March 2020 drop encountered by a volley of Federal Reserve interventions. It was including a program in which it purchased bonds from some of the country’s largest corporations. Even with the stock market’s recovery, this time has been different.
Unlike during the financial crisis, when the Fed primarily provided policy assistance through severe interest rate reduction and asset purchases, Congress this time stepped in with two massive stimulus measures totaling more than $3 trillion. In addition, fiscal assistance includes payments made directly to millions of customers in April – $1,200 in April and another $600 in December and January. Those financial infusions, however transitory, aided two hot rounds of consumer spending as well as a significant increase in the savings rate.
The Federal Reserve has had a hand on gas during the financial crisis. But neither the fiscal nor monetary help has been able to bridge the jobs gap. The US unemployment rate is still above 14% despite efforts by Congress to get people back into work. The US economy is showing signs of recovery, but many variables are still at play. Small-business advocates say small businesses need public support to get back on their feet. Some hope comes from the revival of the PPP small business effort and a possible $15 minimum wage hike.
