Vital Signs: 7 Vital Facts to Know About the Economy

Introducing Vital Signs

Economic reports containing mixed signals along with highly varied interpretations of the reports are creating a wide range of views on the economy. 

Some interpretations focus on levels noting the currently depressed economic levels.  Conversely, others focus on the trends noting the economic rebound occurring and proclaiming that economic normality is just around the corner.  Based on the questions I am receiving; this is creating confusion and frustration among individuals trying to make sense of the economic environment.  

Taking a page from the medical profession, much like when your vital signs are taken during doctor visits, Solutionomics presents seven vital economic signs below.  They provide a fact-based picture of the economy, both from a levels and trends perspective, leaving the interpretation to a separate Solutionomics series, “Prognosis”.    

Importantly, just as there are a limited number of vital signs taken during a doctor visit, Solutionomics limits the vital economic signs tracked.  This sharpens the focus on the most important economic indicators as opposed to a “data bump” that buries the key indicators among a sea of stats.  This also lessens information overload which may be another factor adding to investor confusion. 

Summary of Current Vital Economic Signs

  • Economic activity remains depressed relative to pre-COVID levels in six of the seven vital economic signs
  • Six of the seven vital economic signs are improving

Employment

1.           Total Jobs Lost

  • The number of people employed is 11.5 million less than before the recent economic downturn.

To provide perspective, the chart below shows the maximum number of jobs lost during the previous five recessions along with the current downturn’s remaining job losses.

  • The current number of remaining job losses remains significantly greater than the five previous recessions. 

Source:  St. Louis Federal Reserve

2.           Monthly Job Change

  • August saw a nearly 1.4 million increase in the number of people employed. 
  • If the economy were to continue adding 1.4 million jobs per month the economy would return to previous employment levels in approximately 8.5 months. 
  • Importantly, the number of jobs added each month is declining meaning the number of months it will likely take to return to previous employment levels will be greater than 8.5 months.

Source:  St. Louis Federal Reserve

3.           Unemployment

  • The unemployment rate is 8.4%, down from a peak of 14.7% in April but up from the pre-COVID level of 3.5%.

To provide perspective, the chart below shows the maximum unemployment rate during the previous five recessions along with the current downturn’s unemployment rate.

Source:  St. Louis Federal Reserve

4.           1st Time Unemployment Insurance Claims

  • The number of 1st time unemployment insurance claims was 881,000 in the week ending August 29th.  This is down from a peak of 6.9 million in the week ending March 28th and up from the pre-COVID level of 211,000.

Source:  St. Louis Federal Reserve

5.           Continuing Unemployment Insurance Claims

  • The number of continuing unemployment insurance claims was 13.2 million in the week ending August 29th.  This is down from a peak of 24.9 million in the week ending May 16th and up from the pre-COVID level of 1.8 million.

Source:  St. Louis Federal Reserve

Gross Domestic Product

6.  GDP Change

  • GDP is 10.2% less than before the current economic downturn.

To provide perspective, the chart below shows the maximum decline in GDP during the previous five recessions along with the current downturn’s decline in GDP.

  • The current reduction in GDP remains significantly greater than the five previous recessions. 

Source:  St. Louis Federal Reserve

Consumer Sentiment

7.           University of Michigan Consumer Sentiment survey

  • At 72.5, consumer sentiment is up slightly from its recent low of 71.8 but remains down significantly from its pre-COVID peak of 101.

Source:  St. Louis Federal Reserve

Forget “Don’t Fight the Fed”…Don’t Fight the Virus!!

FACT State Weekly Infection Rate

Investors would benefit from heeding, “Don’t fight the virus” over “Don’t fight the Fed”.

“Don’t fight the Fed” is often the retort when questions surrounding today’s heady stock market valuations are raised. Is that sound advice? Not today.

Continue reading “Forget “Don’t Fight the Fed”…Don’t Fight the Virus!!”

Want the Highest Potential Returns? Hold Cash, Yes, Cash

Cash and cash equivalents “Cash” are typically thought of as low return, low risk, and rightly so.  Yet, during periods like today characterized by a disconnect between depressed (and fragile) economic activity and equity market valuations, cash can hold the key to achieving the highest possible returns.  How?   Cash is much more than a direct source of returns; it is the great return enabler.

Cash:  The Return Laggard

Cash and cash equivalents “Cash” such as short-term U.S. Treasury Bills historically have delivered the lowest average annual returns as shown in the chart below. 

Source:  NYU Stern

Continue reading “Want the Highest Potential Returns? Hold Cash, Yes, Cash”

FAACT State Weekly Infection Rates: 6-27 to 7-3

FAACT states (FL, AR, AZ, CA, and TX) comprise nearly 1/3 of the U.S. population and GDP.

Given their economic significance, Solutionomics is tracking their 7-day infection rate.

From of June 27th through July 3rd, the FAACT state infection rate hit nearly 180,000.

This is more than 7X the rate the week before reopening and it continues climbing.

The five FAACT states alone now comprise more than 1/2 of new weekly infections.

ANATOMY OF THE COMING MARKET DECLINE: FRENZY, FEAR, FIZZLE, AND FALL

Stock market prognostication is something I typically highly recommend against doing, yet I do so below. Why?

First, because I perceive an unusually high level of risk in today’s equity markets. This is based on the inconsistency between today’s stock market valuations on the one hand and on the other hand today’s depressed economic environment and especially because of the highly uncertain vaccine development and distribution timeline.

Second, because the risks inherent in today’s equity markets so far have not been appropriately highlighted in the financial media outlets targeting investors.

If after reading below you are more aware of the heightened risk in today’s equity markets, the primary objective in writing this will have been achieved. The predictions are secondary in importance as they are merely the vehicle to communicate the risks in today’s equity markets.

Stage 1: Frenzy

Continue reading “ANATOMY OF THE COMING MARKET DECLINE: FRENZY, FEAR, FIZZLE, AND FALL”

Forget FAANG Stocks, Watch FAACT State Infection Rates For The Direction Of Equity Markets

FAACT State (FL, AZ, AL, CA, TX) infection rates have nearly tripled since reopening.

If businesses are forced to suspend or severely curtail operations again, that would be devastating fore the economy.

Watch the FAACT state infection rate for clues to the direction of equity markets.

Forget FAANG Stocks, Watch FAACT State Infection Rates for the Direction of Equity Markets

FAACT states (Florida, Arizona, Alabama, California, and Texas) have seen a near tripling of their weekly infection rate since reopening. If business in these states are forced to close or even just significantly restrict operations in the face of rising infections, dreams of a “v” shaped economic recovery could turn into the nightmare of an “L” shaped economic outlook.

Continue reading “Forget FAANG Stocks, Watch FAACT State Infection Rates For The Direction Of Equity Markets”