By: Russ Colbert
Summer 2020 (Vol. 38, No. 2)
It may take a few years for the economy to fully recover from the economic disaster caused by COVID-19 and the shutdowns that continue to limit economic growth of the country. A full recovery would be when the unemployment rate reaches 4.0% and GDP is 3% or better on an annual basis. The economy is now showing signs of starting to recover over the past several months. We believe we will see a much stronger sign of the recovery when we receive third quarter reporting in October.
Consumers have been buying automobiles during July at a strong pace. Cars and light trucks were sold at a 14.5 million annual rate last month. This is the highest since February when they reached 16.8 million annualized for the year. They have increased dramatically from the low annual rate of 8.7 million back in April. We are also seeing improving employment reports, and increasing payrolls expanding faster than anticipated. So far the data shows that of the Jobs lost, mostly in March and April, show a recovery rate of 40% plus through June. The unemployment rate has now dropped from in the 20% plus range down to 10.2%. The recent declines in the unemployment claims show that the improvement in the labor market is continuing. Much of the economic activity was supported by government intervention. It is difficult to measure the impact of all the Federal spending and its impact on GDP. Most of the spending has gone to consumers through unemployment benefits and IRS checks. In other-words the Federal Government borrowed from future generations to fuel the spending today to cover the job losses caused by the COVID-19 crisis.
The positive news is that the recession in our opinion is behind us. We think the economy bottomed around late April or early May. Things should continue to slowly improve going forward. As I mentioned previously third quarter GDP should look better. Many of the experts are looking for it to come in around 15% annualized for the third quarter and continue to improve going forward. The Federal Reserve is committed to keeping the interest rates low and they feel we will not hit their 2.0% inflation target until late 2022 or 2023. We think it may come sooner than that.
It is important to remember that we have seen the worst of the crisis and it is past us. The recovery began several months ago and things have continued to get better. Businesses have adapted and improved and made the best of a terrible situation. The stock market has made a significant recovery over the past several months. Many stocks have recouped most of the losses suffered during the first few month of April and May as we were all dealing with the beginning of COVID-19. We will get back to normal.
Hopefully we will have a vaccine soon or before the year ends. The treatments have improved dramatically. The death rates are slowing down. We, especially the older people, and people with health issues should continue to take precautionary measures when socializing. We will continue to see improvement with treatments and hopefully a vaccine soon.
The election is around the corner and coming soon. We all have to pay close attention to it when it gets here. Currently, it is too early to call and we remain positive.
If you have any questions or need a free portfolio review to keep you on track with your investments or retirement plan, please call me.
Senior Portfolio Manager
Advisory services offered through Royal Palm Investment Advisors, Inc., a Registered Investment Advisor.