EP. 34: Economic Update

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A lot is going on in today’s world in general. Being distracted from the moment we wake up to the time we’ve decided we’ve had enough blue light for the day – as we retreat to bed, before waking up and starting the cycle all over again. And now with the Democratic and Republican conventions kicking off, there is a lot said and more distractions on where the economy stands, therefore there’s a lot to digest. Historically, and undeniably, the economy has played a huge role in whether the incumbent party will continue to lead the nation, or are people ready for a change? So with all the distractions out there and what’s being said – I figured I would do my best to put the state of the economy into context from looking at the economic indicators.

It’s always important to note that people are innately going to be short-sighted, or biased on how the economy is based on how it’s affecting them. Someone who is in the restaurant business or retail is going to be feeling the economic repercussions more than say someone in technology or company like Zoom would be an easy example to use.

Looking at the stock market, or absolute performance while ignoring the economic indicators is an easy way to become misinformed. By most economic indicators my team and I track we are still in a deep recession. And while a few of those indicators are coming back making new highs, others are still way lower than they were pre-COVID. I wanted to touch on some of these data points to add some context to explain why the economy has not yet recovered.

Our Nation’s GDP. Gross domestic product is a monetary measure of the market value of all the final goods and services produced in a specific period, with consumer spending making up about 70% of that number. The Real GDP (which is adjusted for inflation) bottomed in Q4 of 2008 of the Great Financial Crisis at -2.16% (annualized) today we sit at -9.49% (annualized) according to FRED – economic research.

The Unemployment Rate was 3.5% in February 2020 pre-COVID. That number went to as high as 14.9% in April. And as of July 2020, it was at 10.2%. And again, to put that into context – the worst unemployment rate reached during the Great Financial Crisis was 10% in October 2009.

Non-Farm payroll workers. In February when the unemployment rate was 3.5% there were a little over 152 million people employed (According to Fred – Economic Research), which is currently around 140 million. There are 12.8 million people who have lost their jobs since the pandemic spread and still have not found new employment. That’s like taking the whole greater Rochester population 12 times, and all those people being unemployed, or NYC’s population one and a half times.

Like any recession, they run their course – and some of the indicators start to show signs of life indicating that the economic machine or cycle is ready to start a new. How long that will take to come to fruition is going to depend on the virus and how we handle it.

Existing home sales – the Existing Home Sales report is released monthly by the National Association of Realtors (NAR) and is a lagging indicator, as it tends to react after a change in mortgage rates. The number came was at 5.76 million in January 2020. It fell precipitously to 3.91 million in May and has since exceeded pre-COVID levels showing 5.86 million in July (again compliments of FRED – Economic research). This number is very promising and while it’s most likely fueled by extremely low-interest rates. I’ll take it!

Retail Sales and Food Services sales were cruising at around $204 Billion in January 2020, again this is according to FRED- economic research. Those figures took a serious hit, and since have recovered to over $207 billion in July. A lot of that being driven by online e-commerce giants and home improvement, remodeling, etc.

New Home Sales – Which in the general market account for about 16% of all home sales are back above earlier highs, which similar to existing home sales is promising.

Last but not least we have the stock market’s reaction to all this. The stock market has been trading on not only these economic indicators, but fear, and now optimism. The Market always finds ways to price in the general emotional heartbeat of investors in the short-term. On February 18th the S&P 500 made new highs at 3,386. We have since passed that and set a new all-time high at 3,395. This to me shows a promising future for stocks. And yet another reason why investors are rewarded when it comes to not only investing but staying invested in the world’s capital markets.

I hope this helps give you some context as to where we are or how bad, or good it is as we head into 2021. Know that my team and I are here to help those in the Rochester community build wealth and make better financial decisions. If you’re looking for some guidance it all starts with a conversation that I would be more than happy to have. Thank you for watching and as always thank you for giving your finances the attention that they deserve.