You might be surprised to learn that the S&P 500 is within a hair of its pre-pandemic level and the Dow Jones Industrial Average is only 1,500 points away from its prior high. If you’ve been paying close attention to the news, regardless of what channel you watch, you probably think things are pretty bad right about now. This isn’t a political statement since the news tends to focus on that which drives viewers and the more sensational it is, the more people watch. On the left, we hear about the dire state of the unemployed and the frightening rise in the number of people testing positive for COVID-19. On the right, we’re told to expect fraudulent mail-in voting and the certainty of economic collapse under a Biden administration. The fact is neither is completely factual. I hope this week I can shed some light on what is actually occurring in the economy. The following are data points tracked by Goldman Sachs:
Over the years, I have harped on the fact that consumer spending accounts for approximately 70% of our country’s Gross Domestic Product (GDP). As long as people spend, the economy grows. You may be surprised to learn that consumer spending is 94% of the pre-virus level over the last week, up from an April bottom of 80%. While it still has a way to go, it isn’t nearly as depressed as you may think. (Note: spending patterns have changed since March)
Nonresidential construction spending remains modestly above pre-virus levels. Home sales had largely recovered by June, as pending home sales reached 104% of the pre-virus level after an April bottom of 62% and remained stable through the start of July. I have one piece of anecdotal evidence. A neighbor two houses down put his house on the market last week. It sold within 24 hours.
Manufacturing exports (ex-aircraft) rebounded over the last two months and are now only modestly below the pre-virus level (-1% year-over-year and 97% of the pre-virus level).
Job growth exceeded expectations in the July employment report and jobless claims fell below 1 million for the first time in 21 weeks. While there are still some risks with regard to small business closures and bankruptcies, the labor market is improving slowly but surely.
Spread of the coronavirus is moderating nationwide, as some of the worst-affected states continue to see declines in the number of new cases per day. But with the level of new cases still very high on average nationally, restrictions are unlikely to change much in the near term.
Signs of long-term damage to the economy are mixed. Large-company bankruptcies increased in July, but total commercial bankruptcies remain well below the pre-virus level.
I recognize I have simplified an otherwise complex web of cause and effect. I also recognize it isn’t as simple as I might suggest. Yes, there are risks with both the economy and the coronavirus. Schools reopening pose one risk. Unemployed people losing extended Federal unemployment benefits is another. The upcoming election, now just 81 days away, is fraught with issues. Small businesses remaining solvent in the face of difficult restrictions is a looming problem. But at the end of the day, not only has the stock market come most of the way back, but so too has the economy. Let’s focus more on the data and less on the fear both sides would have us believe.
Bruce J. Mason, MBA