By: Russ Colbert
Winter 2021 (Vol. 38, No. 4)
The double dip recession many were fearing did not happen last quarter and we do not see it happening in early 2021. The shutdowns have seriously affected retail sales and employment, especially the restaurants and bars. Much of the economy, such as manufacturing output and housing has kept growing. Even though the latest stimulus bill did not pass until December, it should lift the economy in the first quarter where it is much needed. It is too bad the growth is borrowed from the future. Some parts of the economy that are not being positively affected by deficit spending are still in bad shape. That is why we feel that a Congress and President Biden will pass more spending programs in the months ahead that will help the economy in the short term.
When we have the combination of more spending with increased vaccines and warmer weather, the economy should keep growing. We believe GDP will grow to somewhere around 3.5 to 4.0 percent for 2021. Payrolls should grow somewhere around 5 ½ to 6 million new jobs for 2021. It will be lower than the numbers prior to COVID-19 pandemic, but should be a good improvement after the drop we experienced during last year and it should continue to improve. We would be more than 2 million jobs short of where we where 12 months before Covid-19, but it is still the fastest percentage of job growth since the 1970’s. Good progress, but not a full recovery.
The fourth quarter of 2020 was good. We believe real GDP will come in around a 5% annual rate. This is still below where we were a year ago. There has been a lot of damage to small businesses and will take years to improve and get back to normal. Some of the fourth quarter improvement came in car and truck sales. The car and truck sales rose around 20%. Retail sales for the quarter showed a decline in inflation over 2%, but overall inflation for 2020 we feel will come in around 3%. Business investment in equipment was strong in the fourth quarter. The Residential construction continued to grow during the fourth quarter, likely reaching the highs of 2007. We feel home building will continue to be strong. The housing market should continue to improve with the low interest rate environment. Inventories seemed to grow during the fourth quarter for the first time since 2019. They should mask a strong and positive contribution to the economic growth in 2021, due to companies needing to restock their shelves.
We are concerned about the large deficit. The budget deficit for 2020, that ended the fiscal year on 9/30/2020 was $3.1 trillion, the highest on record. This year it will be larger. Now with the Covid-19 relief stimulus in the works it may be over $4 trillion dollars this year. That additional stimulus will work itself into to the economy and should give the economy a positive boost. This larger deficit is likely a longer-term problem and should be addressed once we pull further away from the problems caused by the Covid-19 pandenic. We believe as the vaccine is further distributed to more people and more states continue to open and business continues to pick up and improve so will the economy. Going forward we should continue to see things improve overall and slowly get better.
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Senior Portfolio Manager
Advisory services offered through Royal Palm Investment Advisors, Inc., a Registered Investment Advisor.