We continue to see signs of improvement in the U.S. economy, albeit very slow and gradual ones as businesses start to reopen, and people decide to venture forth from the lockdown in their homes and apartments. In a speech today to the Peterson Institute for International Economics, Federal Reserve Chairman Jerome Powell declared, “The scope and speed of this downturn are without modern precedent, significantly worse than any recession since World War II. We are seeing a severe decline in economic activity and in employment, and already the job gains of the past decade have been erased.#1
Yet, he also was quite forceful in arguing that difficult times call for extraordinary measures to limit the long-term damage to the economy. I think this position is very good news for us as investors as it demonstrates that decision makers understand the urgency of decisive action in the face of an extreme decline in economic activity. Powell also argued that there are just too many unknowns concerning the virus, and hence policy must be fluid and dynamic to meet a changing threat.
1. Americans are returning to their normal activities.
Google provides some useful data concerning the movement of people during their various daily activities. Data from the Google Mobility website show that Americans are slowly returning to many of their normal activities as lockdown restrictions are relaxed.#2 Retail and recreation activities were down over 60% at the peak of COVID-19 in mid-April but have recovered dramatically over the last four weeks. Of some interest, workplace mobility has not recovered as much, probably due to the widespread work-from-home (WFH) phenomenon. These data sets will certainly reflect profound changes in future consumer behavior, and patterns as the American consumer makes up almost 70% of U.S. Gross Domestic Product.
2. Initial Jobless Claims are declining.
Initial Jobless Claims (Upper Chart) peaked on March 28 after the S&P-500 Index (Lower Chart) bottomed on March 23. Although Initial Claims are still extremely high, with the last report at 3.169 million as of May 2, the good news is that the number of Initial Claims continues to decline, which implies that we have seen the worst and the situation is slowly improving.
3. Many factors affecting Cost of Living are declining.
As prices fall, consumers are receiving some relief with lower gasoline prices that are down by an average of 34% over the last year to $1.94 per gallon. In addition, 30-year mortgage rates have declined to 3.23% on a nationwide basis, so make sure you speak with a loan officer about refinancing an existing mortgage.
Although we are still in the midst of a difficult and challenging pandemic, there are certainly some bright spots emerging as a recovery takes shape. We continue to urge a prudent approach toward risk-taking in your investment portfolio. We have used this time to rebalance portfolios in cases where it was appropriate.
We do not take your trust and confidence in us for granted; we are here to serve all of your financial needs. Please keep your family and friends healthy during this pandemic. We will endure and thrive in partnership with you.