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.
Sri Lanka Economy Shrinks 1.6% Amid Political Chaos, Inflation – BNN
(Bloomberg) — Sri Lanka’s economy fell back into contraction last quarter as the country battled its worst economic problems since independence, with emergency aid to stabilize the island nation proving elusive.
Gross domestic product declined 1.6% in the quarter ended March from a year earlier, the Department of Census and Statistics said in a statement on Tuesday. That’s shallower than a 3.6% contraction seen by economists in a Bloomberg survey and compares with a revised 2% expansion in the previous quarter.
The contraction likely marks the beginning of a painful and long recession for the country, whose Prime Minister Ranil Wickremesinghe last week said the economy had “completely collapsed.” The crisis follows years of debt-fueled growth and populist fiscal policies, with the Covid-19 pandemic’s hit to the dollar-earning tourism industry serving as the last straw.
Absence of foreign exchange to pay for import of food to fuel led to red-hot inflation, the fastest in Asia, triggering protests against the government led by the Rajapaksa clan that eventually led to the resignation of Mahinda Rajapaksa as premier. While the months-long protests hurt business activity in parts of the country, the government on Monday imposed new curbs, which includes a call to residents to stay home until July 10 to conserve fuel.
That will depress activity further, while raising the risk of more unrest given lingering shortages of essential goods.
Sri Lanka is in talks with the International Monetary Fund for aid to tide over the crisis, with at least $6 billion needed in the coming months to prop up reserves, pay for ballooning import bills and stabilize the local currency. The central bank has raised interest rates by 800 basis points since the beginning of the year to combat price gains that touched 39%.
Other details from the GDP report include:
- For the first quarter, the services sector grew 0.7% from a year earlier
- Industrial production slipped 4.7% and agriculture output contracted 6.8%
©2022 Bloomberg L.P.
China's economy recovering but foundation not solid, premier says – Financial Post
BEIJING — China’s economy has recovered to some extent, but its foundation is not solid, state media on Tuesday quoted Premier Li Keqiang as saying.
China will strive to drive the economy back onto a normal track and bring down the jobless rate as soon as possible, Li was quoted as saying.
“Currently, the implementation of the policy package to stabilize the economy is accelerating and taking effect. The economy has recovered on the whole, but the foundation is not yet solid,” Li was quoted as saying.
“The task of stabilizing employment remains arduous.”
China’s economy showed signs of recovery in May after slumping the previous month as industrial production revived, but consumption remained weak and underlined the challenge for policymakers amid the persistent drag from strict COVID-19 curbs.
China’s nationwide survey-based jobless rate fell to 5.9% in May from 6.1% in April, still above the government’s 2022 target of below 5.5%.
In particular, the surveyed jobless rate in 31 major cities picked up to 6.9%, the highest on record. Some economists expect employment to worsen before it gets better, with a record number of graduates entering the workforce in summer.
Li vowed to achieve reasonable economic growth in the second quarter, although some private-sector economists expect the economy to shrink in the April-June quarter from a year earlier, compared with the first quarter’s 4.8% growth.
(Reporting by Kevin Yao and Beijing newsroom; Editing by Andrew Heavens, William Maclean)
Economy sending mixed signals: Maybe a recession isn't coming – Axios
The job market is strong. Layoffs are happening. Businesses are pessimistic. Consumers are still spending.
- If you’re having a hard time figuring out this economy, you’re not alone — it’s sending all sorts of mixed signals.
Why it matters: The inflation crisis — namely record gas prices — has plunged consumer sentiment to an all-time low.
- Meanwhile, the Fed’s bid to wrest control of price spikes by imposing interest-rate hikes is having far-reaching effects.
The big picture: Depending on where you focus your attention, the economy can look nowhere near as bad as some people say — or that we’re heading for a total face-plant:
- The unemployment rate is only about a point away from an all-time low, but companies like Redfin, Netflix and Coinbase are cutting workers.
- Business optimism hit the lowest point in the 12 years of JPMorgan Chase’s Business Leaders Outlook Pulse survey, released today. But durable goods orders rose 0.7% in May, according to figures released today, signaling that companies were still spending.
- Mortgage rates are pricing many buyers out of the housing market — but median home price growth held steady for a third straight week last week.
Reality check: The pandemic triggered a period of profound economic disruption, leaving some of the economic tea leaves harder to read than in past cycles.
- Much of what seems today like conflicting or inconsistent data could simply be the result of an economy on the brink of change.
What they’re saying: “As people learned to live with COVID-19 and prove resilient so far to higher prices at the checkout stand, economic momentum will likely protect the U.S economy this year,” S&P Global Ratings U.S. chief economist Beth Ann Bovino said Monday in a statement. “What’s around the bend in 2023 is the bigger worry.”
The bottom line: Uncertainty is toxic for investor and consumer sentiment.
Sri Lanka Economy Shrinks 1.6% Amid Political Chaos, Inflation – BNN
Interest rates send shivers through B.C. real estate market – Business in Vancouver
Should I be worried about monkeypox? A doctor answers questions as the outbreak spreads – CBS News
Silver investment demand jumped 12% in 2019
Europe kicks off vaccination programs | All media content | DW | 27.12.2020 – Deutsche Welle
Global Media Markets, 2015-2020, 2020-2025F, 2030F – TV and Radio Broadcasting, Film and Music, Information Services, Web Content, Search Portals And Social Media, Print Media, & Cable – GlobeNewswire
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