Are We Finally Putting the Pandemic Behind Us?
Dear Rich Lifer,
Good news seems to be splayed all over the headlines these days! From falling unemployment claims to increasing household income to robust economic growth, could it be that we are finally putting the pandemic behind us?
These updates may seem too good to be true after a year filled with devastation and economic collapse. But, things are actually looking up in the first quarter of 2021.
According to the Commerce Department, gross domestic product (GDP) grew at a 6.4% seasonally adjusted annual rate in January through March. This puts the U.S. within 1% of its peak, which was reached in late 2019, right before the coronavirus hit America.
Both households and the government stepped up spending this year. Vaccinations and stimulus checks have encouraged families to start spending on big-ticket items like cars, furniture and bikes.
Ted Houser, co-owner of Hush Money Bikes in Lancaster, Pennsylvania, commented, “People have openly said, ‘This is my stimmy money—take it.’ But I think the demand is beyond that. It’s really a lifestyle thing right now. It’s something people can do safely during the pandemic.”
Meanwhile, the federal government increased spending on vaccine rollout and business relief.
Observing the tremendous recovery that has happened over the past few months, Gregory Daco, chief U.S. economist at Oxford Economics, stated:
If you had asked me a year ago where we would be today I certainly would not have said we would have recouped the pre-pandemic levels of economic activity. Everything about this crisis has been unique. The speed and the magnitude of the contraction in economic activity was unprecedented. The amount of policy support put in place was extremely rapid.
It’s crazy to think that just a year ago, the economy was contracting dangerously. Second quarter 2020 output fell by a historic annual rate of 31.4%, and the unemployment rate hit 14.8%, a post World War II high. In all of 2020, the economy contracted 2.4% compared to fourth-quarter output a year earlier—the first downturn since the 2007-2009 financial crisis.
The government response to the pandemic was swift, and $5 trillion has been spent on aid packages to assist struggling families and businesses. The Federal Reserve pushed interest rates to near-zero and lowered borrowing costs.
As a result, we have seen vigorous economic growth over the last three quarters. Let us take a look at where we are now…
Household income rose at a historic pace of 21.1% in March due to the federal stimulus checks, which helped fuel the ongoing economic revival.
This surge was the largest monthly increase on record dating back to 1959. Stimulus payments accounted for $3.948 trillion of the overall seasonally adjusted $4.213 trillion rise in March personal income.
The personal-saving rate also surged to 27.6% in March, the second highest rate on record — the highest rate was last April when the first round of government aid was distributed early in the pandemic.
This influx of income and increase in savings means that Americans have cash to spend, and it seems like they are finally feeling secure enough to actually use it. The Commerce Department reported that spending was up 4.2%, the largest month-to-month increase since last summer.
Analysts believe that this round of stimulus checks in particular had larger effects on spending because the checks themselves were bigger and were aligned with more economic reopening.
Zach Amsel, data analytics director at Earnest, reports that spending among stimulus recipients grew faster in states that reopened more quickly, including Texas and Florida. Mr. Amsel observed, “Local economies matter. In Texas and Florida, restrictions were never as strict as New York and California, you saw that play out since April of last year.”
Falling Unemployment Claims
Other good news comes from the job market, where unemployment claims fell to their lowest levels since the beginning of the pandemic over a year ago.
On Thursday, the Labor Department reported that initial unemployment claims fell by 13,000 last week to a seasonally adjusted 553,000. This marks the third straight week jobless claims were below 600,000 — already the lowest level since early 2020.
The four-week moving average — 611,750 — was also a pandemic low. While these numbers convey a sense of optimism about recovery, they are still more than double the amount of claims submitted in the months before the pandemic hit.
AnnElizabeth Konkel, an economist at job search site Indeed.com, noted, “The labor market looks to be moving in the right direction. We certainly need further improvement, but with the number of fully vaccinated individuals increasing, the coming months look promising.”
As vaccinations have increased, states have lifted restrictions, enabling more parts of the economy to reopen. This, in turn, has increased job creation and hiring. In fact, the U.S. added 916,000 jobs in March of this year.
Again, these numbers are a great step in the right direction, but it is important to note that we are still 8.4 million jobs short of where we stood in February 2020.
All of these hopeful statistics have resulted in consumer confidence increasingly swiftly in April…
Consumer Confidence Rises
April marked the fourth straight month of gains in consumer confidence levels. This was due to many of the factors we have already mentioned, including increased vaccinations, stimulus payments hitting bank accounts and businesses reopening.
On Tuesday, the Conference Board reported that the consumer confidence index increased to 121.7 in April from a revised 109.0 in March. This puts the index at a year-long high, within reach of the pre-pandemic level of 132.6 in February 2020.
Lynn Franco, senior director of economic indicators at the Conference Board, said she believes “Consumers were more upbeat about their income prospects, perhaps due to the improving job market and the recent round of stimulus checks.”
This rise in confidence bodes well for consumer spending in the upcoming months and with consumer spending acting as a primary driver of the U.S. economy, it’s safe to say this is very good news for continued economic recovery.
To a Richer Life,
The Rich Life Roadmap Team