An Economic Update - 9 Key Takeaways

For the past year, we've engaged multiple times with Alex Chausovsky from ITR Economics to provide an update to help our members and their teams.

The purpose of these sessions is to help us all better understand the current business cycle we’re in, the data behind, and make appropriate and unemotional investment plans and decisions.

Overall, ITR believes strongly in full recovery – regardless of election results – over the next two-plus years.   Three main factors play into their thoughts:

• COVID-19 trends
• Economic leading indicator trends are rising
• The timing, magnitude, and impact of the federal stimulus

Alex joined us on September 30th to provide their latest outlook.  I captured nine key takeaways I think you’ll find interesting and of value.  

1. The fears connecting the upcoming flu season with the pandemic may be overblown.  In the US, reported flu cases are currently off from the same period YOY.  In the southern hemisphere (where winter has already passed), there was virtually no flu season.  One can surmise this is mainly due to pandemic mitigation factors we have today that were not there a year ago.
    
2. Our economic recovery is gaining momentum.  The twelve economic indicators ITR follows closely - and considers critical - are on the rise. 
    
3. Housing indicators are typically good indicators of future overall economic direction -. The Housing Market Recovery Index has risen steadily since its April low…which is another indicator for a rising economy in 2021.  This index is a strong benchmark for the industrial/business economy and typically leads the overall economy by about 12 months.
    
4. Anticipate additional government stimulus.  The federal liquidity bridges provided to consumers and businesses over the summer effectively propped up the economy during the shutdown.  There is disagreement on the priorities and amount of additional stimulus on the hill, but agreement more is needed.  Both sides are giving some in negotiations and expect it to get done.
    
5. The increase in debt (due to stimulus) is not a problem short-term.   That's because of takeaway number seven below.  Long-term, however, in the 2030s, it may be.  The US does not pay down its debt – we only make the debt service payments.  And, our interest rates are at an all-time low.  We borrowed cheap money.
    
6. Fed leaders expect interest rates to remain flat and low through the next few years.  If you are going to do it, now is a great time to put other people’s money to work for you. 
    
7. The economy has no preference for what party is in power.  GDP has grown steadily since the '50s.  On average, GDP has risen 2.8% while the Democratic administration is in control and 2.5% with a GOP candidate.
    
8. What matters is policy.  On average, new legislation takes about 12-18 months to get implemented and another 6-9 months to take hold on the ground.  Watch what happens and assess what it means, but don’t lose sleep over it.  Ignore the drama and instead focus and invest in what you can control – people, training, equipment – and take advantage of the rising economic trend in 2021.
    
9. US Industrial (the B2B barometer) recovery begins now.  It will be 2023 before our US industrial economy is “whole again” (back to 2020 pre-COVID levels).  It looks like about an 8% contraction in 2020, a predicted 4.8% growth rate in '21, a 2.5% growth rate in '22, and additional growth back to par in '23.