Quote from Savings Beagle on February 24, 2020, 3:09 pm

July 2021 Final Update

I initially started this post as an introduction to our "How's the Economy?" page where a few key economic statistics are listed that provide a rough overview of how the U.S. economy is behaving.

Then Covid hit with a vengeance.

And this post transitioned to a look at how the U.S. economy was weathering the Covid storm.

For the most part, and with the caveat that Covid-related issues won't emerge more forcefully over the coming months, the current economic hit from the pandemic is behind us.

Which is why this is the last update to this post.

The U.S. economy was fairly strong as 2019 ended and 2020 began.

Unemployment was at levels not seen for decades. 

Economic growth as measured by Gross Domestic Product (GDP) was a hair above what is considered average economic growth levels - the 2% range.

Consumer sentiment as measure by the University of Michigan Consumer Sentiment survey was strong.

And the Labor Force Participation Rate, while low by historical standards, had ticked up a bit - more Americans of working age employed - as 2020 dawned.

Then the pandemic hit.  And all those positive economic statistics dropped like a rock.

Which is to be expected when an economy all but completely shuts down.

Gradually, as 2020 moved on, the U.S. economy recovered.

As states re-opened and loosened restrictions, jobs returned and consumer spending expanded from its largely online focus to a more well-rounded spreading of dollars.  In-store shopping and dining gradually returned.

The pandemic and the various government actions associated with it did significant damage to certain sectors of the economy.

But what we learned as time progressed was that there were other areas of the economy that were able to maintain close to normal activity and avoid the significant financial hit that sectors such as travel and tourism, hospitality (bars and restaurants) and many small businesses could not.

And this ability for a large sector of the economy to remain somewhat unscathed, coupled with an unprecedented infusion of government money into the economy by way of business "loans" and payments to individuals, is what is leading to the strong recovery that we're seeing right now.

Unemployment rates are dropping...although not yet to levels seen before the pandemic hit.  There are a few reasons for this with such a robust recovery underway.  Don't underestimate the psychological damage that's been done to some individuals.  There are many who don't yet feel safe venturing back to a normal existence.  Others may not be able to go back to work due to children not being in school and limited care opportunities.  And the underlying net for all of these is the federal unemployment bonus of $300 per week.  For a number of jobs, unemployment currently pays significantly more than the full-time pay would.  Remaining on enhanced unemployment is a financial no-brainer.  Which is why some states have ended the federal bonus payments recently.  The $300 per week bonus payments will end entirely on September 6, 2021.  At that point, or a few weeks after, we'll be able to gauge the true U.S. unemployment rate.

While the overall look of the U.S. economy is strong, it has to be acknowledged that at least some of what we're seeing is a "sugar high" from all the government money that was funneled into the system the past year or so. 

And, when looking at spring 2021 up to now, many Americans just needed to get out and enjoy life again after being cooped up for so long.  Will those antsy consumers continue to juice economic activity?  Probably for a little while longer, but we'll have to see as 2021 moves on.

Inflation is another factor that can't be ignored when it comes to a bustling economy. 

We are seeing inflation in many areas right now.

Consumer prices are going up.

And while the narrative from many is that these price increases are temporary due to pent-up demand and problems with supply chains keeping production up, I'd argue that that view is not completely accurate.

Yes, there are issues with supply chains, and there most definitely is pent-up demand, and once those clear, pricing may become more stable.

But, there's another side to inflationary pressures that I don't see as being temporary.

Are the businesses that have had to increase wages to lure workers going to cut those wages?  Not if they want to keep those workers, they're not.  And if a business has increased its prices to cover the increased wage costs will it lower those prices?  Don't count on it.

Many consumer staples companies have announced that they'll be increasing prices due to increased production costs.  Do you think Procter & Gamble will lower the price of Charmin in six months should production costs decrease?  The answer's obvious to that question.

And if you don't see increased prices on products you buy...food and staples primarily...watch for the sneaky trick of reducing the package size while keeping the price the same.  No, it's not a price increase, but the end result is the same.  I explicitly remember post-2009 when Tide laundry detergent's 100 oz. bottles magically turned into 92 oz...but the price remained the same.

We'll be seeing these maneuvers in the coming months if it hasn't already happened.

And while you may think, "so what, it's only a few pennies?" - when looked at across the spectrum of economic activity, your budget will most definitely feel the increases.

Which could impact the U.S. economy if enough consumers begin to pull back their spending as a result of higher prices.

We'll just have to see how it all plays out.

But for now, things look fairly good for the U.S. economy.

Our "How's the Economy?" page is showing GDP at +6.4%, Consumer Sentiment at 82.9, the unemployment rate at 5.9% and the Labor Force Participation Rate at 61.6%. 

Decent and improving economic stats, for sure.

Just don't ignore the speed bumps that may be ahead.

October 2020 Update

I just published my quarterly update for Q3 and thought I'd update this post with some of the info I included.

It's been approximately seven months since the pandemic really took hold in the U.S., causing significant changes to all facets of our society and economy that most of us never would have believed possible just ten months ago.

Below I mentioned how the U.S. stock markets took a significant hit as a result of actions taken early on to mitigate Covid-19's spread.

Surprisingly to most, the markets rebounded quickly from the lows of March, powering to all-time new highs in the past few months.  This is not to say the economy was/is good and that's why the markets returned to their upward trajectory.  No, the reason falls primarily on the fact that the Federal Reserve Bank said soon after the March lows that it would spend whatever it takes to keep the economy from collapsing.  And it has.  In addition to keeping interest rates effectively zero...and stating they likely won't rise until 2023 at the earliest.  Zero percent interest rates effectively force money into the stock markets in hopes of finding some return on investment, contributing to the markets' rise.  If only the Fed actually had the money it was using to shore up the U.S. economic system.  But that's a worry for another day.

Additionally, Congress and the White House came together early on to buttress the Fed's actions with money directed to individuals and businesses to offset the significant damage lockdowns had done as well as implement policy changes to ease payment requirements for those financially hurt by the pandemic and its associated government actions.

All of this kept the economy from falling off a cliff.

Unfortunately, the climate of bipartisanship was short-lived, and when July came around and some of the relief provisions began to expire, the political infighting became more heated.  And has continued up to now.  That's no surprise on the one hand considering a presidency is up for grabs.  On the other, you would think adults could look past the political game-play during a time of crisis for many Americans and do what is right.  At the very least, continue the enhanced unemployment benefits so those who've lost jobs through no fault of their own (and an argument can be made most definitely through the fault of government actions) can continue to live without significant sacrifice until things turn a corner.

We are seeing positive signs for an economic recovery.

The unemployment rate which topped out at 14.7% in April has dropped to 7.9% in September.  A positive sign.  However, there are still over 20 million Americans out of work.  And because our elected officials have deemed politics more important, the amount of benefits those who are unemployed have to live on will be less in the next few weeks if it isn't already.  The actual enhanced unemployment payments from the federal government ran out at the end of July.  President Trump signed an executive order providing an additional $300 per week, but implementation was slow at the state level and the funding source was only good for a few months.  Congress needed to appropriate more money and enact legislation making relief measures more reliable from a start/end date perspective...neither of which they have yet done.

While the economy is slowly moving ahead, additional relief and stimulus funding is going to be needed to keep the forward momentum from stalling out. 

Without it, we could see a serious downturn that will negatively affect many more Americans in the coming months.

Let's hope it doesn't come to that.

Spring 2020

Since I originally posted this in late February 2020, we've seen a significant shock to the U.S. stock markets, as well as markets around the world.  Many central banks have taken the unusually drastic action of lowering interest rates in an effort to stave off the potential economic consequences of the coronavirus.  While the actual economic numbers still show a strong U.S. economy, most recent reports are backward-looking, taking into account economic activity prior to the global spread of the coronavirus and the resulting "panic mode" most news media seem to have engendered.

Make no mistake, psychology can be a powerful thing.  Just planting the seed that things are bad...even though they may not be as bad as they're made out to be...can spread economic-slowing actions like wildfire.

Now that we've seen actual government-mandated closings of parts of our economy, the economic impact will be significant.

Jobs are already being lost.  Businesses, especially small businesses like your local bar, restaurant, dry cleaner, etc., may not be able to survive depending on their financial reserves.

The federal government is going to provide financial relief to individuals and businesses - both small and large - to make it through the next few months.

The question remains, though, what will the longer-term economic situation look like once the coronavirus outbreak is managed?

Unfortunately, as of this point, only time will tell.

That said, the rest of the post below is still valid, and can be a valuable tool for seeing an unbiased view of how the economy is reacting as we move through the coming months.

Before Covid

The economy in the U.S. is a lot like real estate.  How, exactly, the economy is doing...or better put, how people feel the economy is doing...is very location dependent.

Depending on where you go, the answers can range from fantastic to just okay, and even not very good.  And sometimes, that wide range of answers can be within one state...or even a certain geographic region of a state.  It's hard to give a definitive, all-encompassing answer to how the economy is doing when we have such diverse communities throughout the U.S.

Still, to guide public policy (both short and long-term) on a national level, we need some sort of guideposts to let us know how things are going.

And these guideposts are not only helpful for those in charge of developing and implementing government and business strategies but for you, the individual, as well.

Having a decent understanding of where the economic big picture is trending can help you make sound financial decisions that can put you on a better footing no matter how the economic winds are blowing.

I developed the "How's the Economy?" page as a reference that can be checked periodically to see what the most recent economic statistics are saying.

The stats are courtesy of the Economic Research section of the Federal Reserve Bank of St. Louis and are updated whenever new numbers are released.

I selected the economic data that are shown based on what I view as good indicators of our economic climate.  They include:

• Real Gross Domestic Product
• The 10-Year Treasury Rate
• The University of Michigan Consumer Sentiment Index
• The Unemployment Rate
• And the Labor Force Participation Rate

If any of these indicators are new to you, I provide a brief overview of what an individual indicator is and why it's important on the page (at least as far as I'm concerned, that is).

All of these indicators taken together can provide a decent view of how the economy is doing at that given time.  And when looking at the historical trends of each indicator, may be a harbinger of what's to come.

Give the "How's the Economy?" page a look and let me know what you think.

And maybe add a few thoughts on how you, personally, feel the economy is doing. 

As I like to say, knowledge is power.  And this economic information, coupled with what you see in your daily life, will help you to make independent decisions that are right for you.