The Great 2021 Spring Awakening
While we are currently dealing with many challenges, we should pause for a moment to be fully aware that we may be experiencing the GREATEST Spring of our lifetime. In nature, Spring is a time of renewal, flowers, optimism, new leaves, things dormant coming back to life: nature may be a metaphor for ALL things happening right now. Here are just some of them:
- The dramatic drop in new COVID cases and deaths continues to spiral downwards as vaccines take effect. Those fearful of infection are emerging and life is returning to 'normal' almost everywhere in the USA.
- People are going back to work and back to the office. Yes, some are reluctant to do so still due to childcare difficulties, career changes and the comparison of a government check to a long workday with commuting expenses netting less. By September these checks end everywhere.
- GDP growth will be astounding. Many predict a rate of over 8% this quarter.
- New businesses are popping up at the fastest pace on record. Filings to start new firms among a subset of owners who tend to employ other workers exceeded 830,000 through early May, a 21% increase over the same period in 2006, the next-highest year.
- American household debt-service burdens, as a share of after-tax income, are near their lowest levels since 1980, when records began.
- The Dow is up nearly 18% from its pre-pandemic peak in February 2020.
- Home prices nationwide are nearly 14% higher on average in a year.
- The recoveries from the 1990-1991, 2001, and 2007-2009 recessions were “jobless”: Weak demand reduced employers’ need for labor, keeping unemployment stubbornly high for years. This time, however, the labor market appears increasingly tight.
- Last year we dealt with paper towel and toilet paper shortages due to excess demand: this year we are experiencing shortages of almost EVERYTHING! Why? The average American has more money to spend. The US economy is driven almost 70% by consumer spending. Americans were saving at an annualized rate of $2.8 trillion in April—twice as much as more than before the crisis, positioning them to spend lavishly as the economy reopens......that compares with a rate of $734 billion in June 2009, or about $909 billion in 2021 dollars.
- The delinquent share of outstanding debt dropped to 3.1% in the first quarter of 2021, the lowest since records began in 1999. That compares with 5% at the end of the 2001 recession and 11.1% in 2009. This is in part thanks to forbearance offered through federal coronavirus relief and some lenders which protect borrowers’ credit records from missed or deferred payments.
- Financial institutions have loss-absorbing capital equal to 16.5% of risk-weighted assets, the highest share since records began in 1996, and well above 12.3% in 2006, the year before the financial crisis began, according to the New York Fed. They are thus poised to lend.
- While politically things feel more divided and extreme than ever, we can also embrace a new, heightened awareness and signs of real change as it relates to equality and fairness for minorities. Real awareness fuels real change and improvement.
- While crime has spiked across the country - and the world - most of it has been focused on gangs. As the economy bounces back, combined with a heightened awareness that all this needs urgent attention, we should see the numbers improve.
- Inflation has spiked. Manufacturers and suppliers did not fully anticipate the level of demand. Ramping up production is a slow process. Tariffs weigh on pricing too. Rising prices are also a sign of rising demand, a key indicator of an improving economy. The cost of used cars and trucks jumped 10% month-on-month in April, and was up 21% compared with a year earlier, making it one of the main drivers of the 4.2% year-on-year surge in the US Bureau of Labor Statistics’ consumer price index. Core inflation — excluding volatile food and energy prices — hit 3%.
- We have experienced a Spring of record low interest rates and high demand...and an urgency to buy.
Is this massive surge sustainable? Probably not at this rate. Much of this massive activity has been fueled by unprecedented borrowing. Like nature, feeding a garden with fertilizer early usually delivers a growth spurt, followed by healthy, more moderate growth. Hopefully we have not over-fertilized our garden!
****special thanks to the Wall Street Journal for many of the facts above.