Second Year Of Hardship For Economy
Dear Rich Lifer,
The slower-than-anticipated rollout of Covid vaccines and the new strains of the disease popping up around the globe have diminished business leaders’ hope that things will be “back to normal” in 2021.
The pandemic has had varying effects on different sectors of the economy, thus complicating financial forecasts and making it difficult to predict consumer behavior.
Many large companies predict that consumers will not resume activities such as dining, traveling or shopping at a pre-pandemic level till later this year… or in 2022.
Goldman Sachs Group Inc. CEO David Solomon said, “Let me underscore that progress on economic growth is contingent on an effective vaccine rollout program globally. In its absence, economic recovery will be unnecessarily delayed.”
Mr. Solomon is not alone in his opinion. More than 120 U.S. CEOs surveyed by nonpartisan think tank The Conference Board between early November and early December said Covid-19 was their biggest concern and potential business disruptor in 2021. The next biggest concern was vaccine availability.
As of February, only 8.7% of the U.S. population has received a Covid vaccine. Infectious-disease specialists estimate that halting the spread of Covid-19 and its mutations would require more than 70% of the population to develop immunity.
Rick Gates, senior vice president of pharmacy and health care at Walgreens Boots Alliance Inc., raised another concern regarding how long immunity will last. Mr. Gates is confident vaccine distribution will assist in the return to normalcy, but without a clear indicator of how long the vaccine is effective, companies may have to assume Covid will become a more permanent fixture of life that will require annual vaccines.
As 2021 begins with continued lockdowns and restrictions, many executives look to the spring as the season where consumer confidence will grow.
T-Mobile U.S. Inc. Chief Mike Sievert, is optimistic that “we’re going to see widespread vaccination by the middle of the year.”
Even Delta Air Lines Inc. Chief Ed Bastian is hopeful that we will see a shift in the spring as vaccine distribution continues, consumer confidence grows and travel restrictions lift. Airlines have been hit extremely hard by the pandemic. Delta alone reported losses of nearly $12.4 billion in 2020. Overall, airline bookings in January 2021 were down 70% from a year ago..
So if Mr. Basitan can continue to look forward ambitiously, then hopefully we all can. Let us all try to keep that sentiment of optimism in mind as we look at the January jobs report.
U.S. Employers Add Jobs
The U.S. economy added 49,000 jobs last month. The unemployment rate fell to 6.3% in January from 6.7% a month earlier. These are small gains, but gains nonetheless.
The Labor Department said its January report showed most of the jobs created were in businesses and professional services.
There was also a spike in the hiring of temporary workers, which sends a bit of a mixed message about the labor market. Employment in temporary-help services rose by 80,900 in January.
Gus Faucher, chief economist at PNC Financial Services Group, says:
Using temporary labor is an indication that businesses are seeing more demand, but they’re not confident about how long that demand will last. You’d obviously rather see permanent hiring, but it’s a sign permanent hiring is coming—if the vaccines are rolled out and the economy continues to improve.
As we mentioned earlier, the pandemic has affected different sectors of the economy in vastly different ways. We see this clearly when we look at job postings.
Available jobs on job-search site Indeed were up 0.7% at the end of January from February 1, 2020.
However, Indeed also reported that postings for jobs in the hospitality and tourism sector are down nearly 37.9% from February 1, 2020. The January jobs report supports these numbers, reporting 61,000 jobs lost in these sectors in January.
Further, in the arts and entertainment sector, postings are 16.8% below pre-pandemic levels.
So while hope can be bolstered by the increase in jobs overall, that is just the first step to getting the economy back to pre-pandemic levels.
Jed Kolko, chief economist at Indeed, explained that job-postings are just one part of the labor-market recovery. “Getting back to baseline is an essential step. But it’s not enough,” he said. The number of available jobs would have to stay at pre-pandemic levels for “some time” to make up for the jobs lost over the past year.
Right now, according to Sarah House, senior economist at Wells Fargo Securities, we are “9.9 million jobs shy of where we were back in February” of last year.
We certainly have our work cut out for us getting employment back to pre-pandemic levels, but we can leave you with some good news related to state and local revenues!
State and Local Revenues Hold Strong
State and local governments expected the pandemic to destroy their budgets as business closures and layoffs decimated tax revenue.
In March, states slashed revenue projections by an average of about 8%, with some expecting shortfalls as high as 20%.
However, the reality was much less dire than predicted. State revenues only fell 1.6% in fiscal year 2020 and were 3.4% lower than projected before the pandemic, according to the National Association of State Budget Officers.
Michael Strain, the director of economic policy studies at the conservative American Enterprise Institute, remarks, “The revenue problem hasn’t been nearly as bad as we thought. That’s good news.”
However, not every state felt the effects of the pandemic the same. States that rely on revenue from tourism, like Florida and Hawaii, experienced double-digit declines. States that rely on the energy industry, like Alaska and Texas, also saw sharp revenue drops as oil prices fell.
Congress has already provided state and local governments with $300 billion in federal aid. However, the Center on Budget and Policy Priorities estimates the state and local revenue shortfall will total about $300 billion through 2022.
We will have to wait how much aid President Biden’s new stimulus plan will provide to state and local governments to deal with surges in spending on things like health care, jobless benefits and food assistance.
To a Richer Life,
The Rich Life Roadmap Team