The economy is booming and everyone should enjoy it. The American economy is benefitting from tremendous amounts of pent-up demand and in some of the hardest-hit industries’ activity is beginning to tick back up above 2019 levels. Along with that boom, there are clear signs of inflation and concerns about overheating. Even Janet Yellen seemed concerned for a few hours last week.
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.”
Succinct Summary: Retailers reported strong quarters last week showing that the US consumer remains resilient despite high unemployment. A new wave of Covid could slow the economy back down but vaccines are almost here. It will be interesting to see what behaviors have been permanently altered by the pandemic and which ones will return to the way that they were. Business travel is one thing that may be permanently changed.
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Succinct Summary: There were a lot of major data points about the economy last week but the biggest news of all seemed to be just how well tech companies did despite the massive economic dislocation. In a quarter where GDP fell at a 33% annualized rate, Apple managed to grow revenue by 11%! Stimulus probably played some role in tech companies’ strong performance, but beyond the stimulus is the fact that COVID has pushed everyone to spend even more time at home and on the internet. The behavioral shifts appear to be long-lasting too. 20 years after the dot com bubble, the internet is still not done reshaping society.
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A Personal Note: A lot has happened in the last two weeks we have been away. We start on a very positive note—warm congratulations to my co-author Scott Krisiloff and his wife on the birth of their beautiful twins this past week. On a different note, the challenge of racism has come to the forefront of global news. This week, we have a special section on quotes on the reactions from corporate management teams on the issued of racism. The bottom line is that we have a problem that needs fixing. I have also written a personal article about my experience of racism in Scandinavia. – Erick Mokaya
Succinct Summary: There are some glimmers of hope across such industries like airlines, travel and retail as demand picks up from the April lows. We are, however, being cautioned about being too excited and urged to be cautious. All in all, there is significant pent-up demand.
Succinct Summary: The modern economy has never experienced economic carnage on the scale of COVID19. US GDP is forecast to fall by 30-40% while unemployment is likely to rise to 20-30%. What matters though, is how long it lasts. A 30% rate of decline in production for a quarter is different from a 30% decline for a whole year. As public attention seems to turn from the virus to the economy, debate is on whether we will see a V-shaped recovery or not. There are lots of reasons why we are unlikely to see such a rapid recovery but there are also glimmers of economic hope. Still, the path of the economy seems to pale in comparison to the importance of the path of humanity.
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Succinct Summary: Companies are assessing the impact of the Coronavirus and the outlook so far is not good. There is real worry that the slowdown in China could result in a global slowdown.