As we embark on the second half of 2021, the U.S. economy has almost entirely reopened following the pandemic shutdown. With the healing process underway, what challenges will the economy and markets face on the move toward normal? To help figure out what may lie ahead, let’s first take a look back to see how far we’ve come.
A Story of Recovery and Healing
Outside the U.S. Many countries are still struggling to contain the virus. Despite this fact, containment of the virus abroad has begun and progress has been made. The rest of the world has seen less progress than the U.S., but countries abroad will have upside potential throughout the rest of the year. The healing process has started and will continue.
Markets gains. Market action during the month reflected this state of affairs. On the whole, U.S. markets were up. Both the Nasdaq and S&P 500 were up significantly in June, and all three major U.S. indices (including the Dow) were up significantly year-to-date. Markets have hit multiple all-time highs this year even as they continued to move higher. We have seen the same thing abroad. Both developed and emerging markets were up for the second quarter and the year so far, although by less than the U.S. markets. The pandemic has done real damage worldwide, but we can also see that the healing has started.
A story of recovery. Looking back, the story of the year so far has been of recovery and healing. June marked the substantial completion of that process in the U.S. Our state economies are almost entirely reopened. July will mark the start of the next phase of the recovery, as the pandemic and economy move closer to normal.
Slower Improvement Ahead?
Pandemic progress. Regarding the pandemic, the numbers have largely stopped getting better because case growth stabilized at the end of June and the start of July. Moreover, as more contagious variants spread throughout the U.S., we may be looking forward to new flare-ups of the virus in some locations. Another national wave of infections is unlikely, but areas with low vaccination rates could well face local health crises. Overall, the pandemic is likely to remain a risk across the country, although not for the country as a whole. The country can operate at the current levels of infections, and even somewhat higher, and will continue to do so. The pandemic will not go away, but it will be normalized over time just as the flu has been.
Economic progress. In general, economic conditions have improved significantly. But, as with the pandemic, the rate of improvement is likely to slow as we approach normal and the statistics get closer to pre-pandemic levels. Consumer confidence, for example, is now at or above the levels we saw before the pandemic started. But business confidence has pulled back from the peaks seen in recent months. This scenario reflects the replacement of optimism with realism, as our attention shifts from the end of the pandemic to the usual problems. News reports, for example, are now about inflation and supply chain problems, rather than pandemic improvements. This trend is a necessary part of our transition to normal. Nonetheless, it signals that improvement will be slower through July and the rest of the year.
Labor market. The one exception to the trend of slowing improvement is likely to be the labor market. While unemployment remains high, job growth is healthy and will probably remain so. As wages rise, more and more people will be drawn back into the labor market. That will help keep confidence and growth high. We will see slower growth, yes, but we will still see growth. Jobs will be one area where we can expect sustained improvements.
Upside potential. Despite the general slowing of the economic improvement, there are reasons we could get faster growth. As the rest of the world catches up, foreign demand will help the U.S. economy. It seems very likely that we will get large amounts of federal infrastructure spending, which will serve as a tailwind. And the Fed remains committed to low interest rates, which will put a foundation under both growth and the financial markets. All these factors point to significant upside potential.
Negative Headlines Signal Return to Normal
Looking back, in the first half of the year we saw the end—from an economic perspective—of the pandemic. In June, in particular, we started to move back to normal, as worries about the economy replaced worries about the pandemic. Although the economic worries are real, they are a sign that the country is moving back to normal. As such, we can now afford to worry about normal things.
Looking forward to July and the rest of the year, our normal will include some worries, but it will also include continued hiring and continued growth. Normal, here in the U.S., means more jobs, more growth, and higher markets. Not every month, or even every year, but over time. With June very likely marking the end of the economic effects of the pandemic, July should mark the start of getting back to normal. Expect the negative headlines, but welcome them as a sign that things are back to normal. We will be able to worry about things other than the pandemic. Even as the worrisome headlines hit, remember that the underlying trends remain positive. We are moving closer to normal every day.
Restarting a sustainable, export-oriented economy – Business in Vancouver
Clean, sustainable products and services will be key to B.C.’s economic recovery | Chung Chow
This column was originally published in BIV Magazine‘s Trade issue.
As B.C. looks to restart its economy, the demand for our province’s clean and sustainable products and services is surging across a variety of sectors, demonstrating the key role that trade will play in our economic recovery.
Exports increased 24% year-to-date for April – that’s up $3 billion over the same time last year. It’s a big boost for the provincial economy, with a majority of our exports being commodities in great demand. Our stringent environmental standards in wood exports, burgeoning clean tech sector and high standards in labour protections mean that when other markets buy from us, they’re also contributing to a cleaner and more socially responsible global economy.
B.C. was committed to international trade long before the pandemic. It creates new opportunities for businesses, and more importantly, it creates good jobs and prosperity for people in B.C. When businesses export, they are more resilient. Access to more markets means they have a more diverse customer base and aren’t as impacted by fluctuations in their local economies.
We have a program perfectly designed to help small businesses get their goods and services to new markets. It’s called Export Navigator. This program offers businesses free expert guidance on exporting. Businesses get connected with an expert advisor who will help “navigate” them through the export process. It’s hugely beneficial, helping businesses reach new customers for the first time and making the process a lot easier along the way.
We continue to support B.C. businesses in other ways as well. For example, we developed a series of grant programs to meet their unique needs, making over half a billion dollars available in direct supports. The Launch Online program helps businesses improve their online presence to attract and keep customers and meet demand as online shopping hit new heights during the pandemic. The Supply Chain and Value-Added Manufacturing grant helps B.C.-based manufacturers in the aerospace, shipbuilding, food processing and forestry sectors recover and grow, supporting them to seek efficiencies to continually keep goods flowing into the marketplace.
From natural resources and agrifoods to manufactured goods and high-tech goods and services, B.C. has a lot to offer to the world. We are a responsible, low-carbon producer of natural resources and manufactured goods, and we are working hard to make sustainability a larger part of B.C.’s brand and our global competitive advantage. Our priority is to help B.C.-based businesses start up, scale up, access global markets and succeed in the highly competitive world marketplace. The more we export, the more new dollars we bring into B.C. and generate revenue that supports government investments in health care, education and critical infrastructure.
We stand behind the high-quality goods that B.C. has to offer to the world. Globally, companies large and small are increasingly applying environmental, social and governance filters to their investment decisions. We are committed to growing our economy in a sustainable way, and are working on a new trade diversification strategy that will provide us with the opportunity to develop an updated, forward-looking and ambitious approach that aligns closely with these principles, while ensuring that our exporting businesses are maximizing the opportunities afforded to them through Canada’s existing free trade agreements. Our recently announced Mass Timber Demonstration Program is an example of how we are advancing technologies that can showcase to the world the possibilities of building with a more sustainable and environmentally friendly product from B.C.
The pandemic leaves behind many lessons and creates a once-in-a-generation opportunity for B.C. to redefine itself. We know the pandemic is not impacting everyone equally, with women and visible minorities being disproportionately impacted. This is why we are committed to continuing to grow strong, robust industries that can provide good jobs for all of B.C.’s diverse populations.
Growth in trade will be a big part of our economic recovery, and as we transition through our restart plan, we will continue to engage with businesses, industry and key stakeholders to ensure we’re supporting their efforts to expand globally.
Our goal is to diversify our trade sectors to include not just our natural resources, but clean tech, high tech, agritech and advanced manufacturing. We need to support our exporters and encourage new exporters to expand our opportunities in global markets and strengthen our resilience.
We’re committed to invest in people and in businesses to restore economic growth and we are confident that the entrepreneurial spirit of B.C.’s business community will rise to the challenge as we work together to build a better future with meaningful jobs and a strong, sustainable economy for all.
Ravi Kahlon is B.C.’s minister of jobs, economic recovery and innovation. George Chow is the province’s minister of state for trade.
This column was originally published in the July 2021 issue of BIV Magazine. The digital magazine can be read in full here.
ECB Lifts Restrictions on Bank Dividends as Economy Rebounds – Bloomberg
The European Central Bank said it will lift a cap on how much lenders can return to shareholders with dividends and share buybacks, while urging them to remain cautious given uncertainty in the pandemic.
The ECB “decided not to extend beyond September 2021 its recommendation that all banks limit dividends,” the central bank said in a statement on Friday. “Instead, supervisors will assess the capital and distribution plans of each bank as part of the regular supervisory process.”
Reopening economy buoys B.C.’s job market – Business in Vancouver
B.C.’s labour market outperformed most of the country in June with a 1.6% (42,100-person) monthly gain and outpaced the national increase of 1.2%.
The province moved through steps 1 and 2 of its restart plan, highlighted by the reopening of restaurant in-house dining and larger organized events, travel and other recreation. The labour market has fully recovered employment losses from the previous two months, exceeding pre-pandemic levels by 0.6%. The latter marks the best performance among all Canadian provinces, reflecting shallower economic restrictions from the pandemic, solid performances in the commodities and technology sectors and a robust housing market.
However, full-time work has similarly lagged, with levels 1.6% lower than in February 2020, while part-time work rose 9%. B.C.’s unemployment rate fell to 6.6% from 7% in May and marked the lowest level since the pandemic began.
Metro Vancouver performance was consistent with employment growth of 1.5%, although unemployment remained higher at 7.4% of the labour force.
There was strong rehiring for accommodation/foodservices (up 12%) employees as dining restrictions were largely lifted. This contributed half of the net monthly increase. Significant gains were also recorded in finance/insurance/real estate (up 4.1%), health care/social assistance (up 3%) and business/building/other support (up 5%). Gains align with broader business and office reopenings. A drop in resource employment and construction were partial offsets to services-driven growth.
Hiring momentum will continue with Stage 3 of the restart plan underway, which allows for larger events, fairs and trade shows, reopenings of casinos and normalization of fitness classes and gyms, while domestic tourism partly offsets international travel restrictions.
The Lower Mainland’s housing frenzy continued to cool through June as affordability erosion and satiation of demand pulled forward by the pandemic cut sales. Meanwhile, both buyers and sellers are likely taking a step back to pivoting attention to other activities as social restrictions ease.
Multiple Listing Service sales spanning Metro Vancouver and Abbotsford- Mission (Lower Mainland) reached 6,007 units last month. While still up a lofty 46% from a year ago, this is compared with a 217% increase in May. •
Bryan Yu is chief economist at Central 1 Credit Union.
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