The Reality of Vaccines Effect on Economic Recovery

Dear Rich Lifer,

We’ve reached an important milestone in the mission to get Americans fully vaccinated against the coronavirus!

At least 25 states and D.C. have fully vaccinated at least half of their adult residents, according to recent data from the CDC. 

All around the country, states are opening up as the rate of vaccinations increases. 

In New York, Mayor Bill de Blasio announced that the city’s public schools will return to full in-person learning this fall.

In California, the San Francisco Symphony recently held its first in-person concert in over a year.

In Michigan, Governor Gretchen Whitmer disclosed updated return-to-work procedures and guidelines which will allow fully vaccinated individuals to go maskless and stop social distancing. 

Jay Varma, a physician and senior adviser to New York City Mayor Bill de Blasio, explained that once 50% of a population has received a vaccine, “you reduce the risk of your healthcare system being overrun and you reduce the risk of mass death. So that’s why we feel comfortable relaxing a lot of the restrictions that we have on nonessential businesses.”

With all this in mind, it might feel like newly vaccinated folks are the force driving the economic surge. 

However, the data points in another direction. And while vaccinated Americans are going out, they are still venturing back into the world less than their unvaccinated counterparts. 

Today, we’ll explore this new data and break down what it really means for economic recovery… and what it means for your portfolio.

Unvaccinated People Are “Leading the Charge”

April spending and survey data from market-research firm Cardify.ai show that vaccinated consumers are less likely to visit restaurants, salons and entertainment venues than those who don’t plan to get the vaccine. Cardify surveyed about 1,600 consumers through the mobile rewards platform Drop to collect the data. 

Derrick Fung, chief executive of Cardify, explains the findings of the research. He points out that vaccinated people are “still not really comfortable doing live entertainment where there’s crowds of people” and instead are “proceeding with cautious optimism.”

Meanwhile, people who aren’t vaccinated have been more risk-tolerant and are “ the ones leading the charge” when it comes to reopening the economy. 

For example, spending at entertainment venues was up 20% from January 2020 among consumers who do not plan to get vaccinated, but it was only up 10% for vaccinated people over the same timeframe. 

Across the country, foot-traffic (a proxy for spending) at locations of in-person services such as hotels, theaters and airports is still below pre-pandemic levels. However, foot-traffic is rapidly climbing in states where the Covid-19 vaccination rates are under 45%, according to data company Earnest Research.

We see these numbers reflected in basically every sector of the economy.

Visits to airports, hotels and theaters in less vaccinated states had recovered in April to 71.2% of pre-pandemic levels versus 52.7% in more vaccinated states. 

Gym visits had bounced back to 87.3% of pre-pandemic levels in less vaccinated states versus 68.5% in more vaccinated states.

The trends continue for other in-person spending like restaurants… but why? 

Why the Trend? 

The data from Earnest Research also revealed that nearly all the states with higher vaccination rates and slower returns to in-person industries voted for Joe Biden in the 2020 elections. 

Political affliction could, therefore, be a driving trend of this phenomenon. Consider, most blue states had stricter business restrictions throughout the pandemic, and northern blue states like New York were hit particularly hard by the virus.

As a result, online shopping habits in these areas account for higher portions of overall spending in more-vaccinated blue states than in red states. 

Although it is clear that vaccinated people are taking longer to fully immerse themselves in everyday life, Mr. Fung expects spending among vaccinated people to hit full force by the summer. 

So what does all this mean for the economy overall?

Economic Expectations 

Economists are predicting economic growth will pick up further in the second quarter and continue to stay steady in the second half of the year. 

Many actually expect output to grow between 6% and 7% in 2021. 

In normal times, a surge in spending on services, like what we are seeing now, would mean that there would be a slowdown on other spending, including consumer durables. 

Usually, people don’t have as much money to spend, but because Americans have built up their savings so much during the pandemic, experts believe spending will continue in both sectors. 

Of course, the distribution of those savings is not even in American households, with older and richer people building up more savings than younger and poorer people. However, President Biden’s proposed fiscal budget would allocate $705 billion to poorer households to ease constraints where savings are scarce. 

When looking at the stock market, we saw stocks jump at the beginning of the week after Federal Reserve officials eased inflation concerns. But then the rally faltered on Tuesday.

The general consensus seems to be that volatility in Bitcoin and other cryptocurrencies is driving stock market fluctuations. 

Peter Boockvar, chief investment officer with Bleakley Advisory Group, noted that the markets are “being bullied around by where bitcoin goes.”

The Consumer Confidence Index held mostly steady this month, dropping only from 117.5 in April to 117.2 in May. Lynn Franco, Senior Director of Economic Indicators at The Conference Board, commented:

After rebounding sharply in recent months, U.S. consumer confidence was essentially unchanged in May. Consumers’ assessment of present-day conditions improved, suggesting economic growth remains robust in Q2. However, consumers’ short-term optimism retreated, prompted by expectations of decelerating growth and softening labor market conditions in the months ahead… Overall, consumers remain optimistic, and confidence should remain resilient in the short term, as vaccination rates climb, COVID-19 cases decline further, and the economy fully reopens.

So while we may have to look out for some market volatility in the coming weeks, it would appear this is due to bitcoin rather than weakened consumer confidence or consumer spending.

To a Richer Life,

The Rich Life Roadmap Team

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