This “stay-open, shut-down, open-up, shut-down-again” thing just doesn’t work for our economy.
Is anyone really surprised?
GDP numbers showed the economy posting its worst showing in 70 years—and we have only ourselves to blame.
The proof comes via the Commerce Department’s most recent gross domestic product report. GDP calculates the value of all goods and services produced throughout our economy and, needless to say, we’re not producing like we did this time last year.
Second quarter GDP fell at a seasonally, inflation-adjusted rate of 32.9%–or, a drop of 9.5% from the first quarter.
But, we knew this was coming.
Local lawmakers effectively tortured their states’ economies with their indecision and lack of leadership. An inability to commit to reopening our economy, combined with an inability to protect the most vulnerable Americans, including the elderly and those with pre-existing conditions, proved just how disorganized, incompetent, and schizophrenic our state leaders really are.
Simultaneously, the far-reaching effects of local leaders’ refusal to allow outside weddings, funerals and other outdoor gatherings, while nonetheless permitting people to march in the streets by the thousands, augmented individuals’ fears of big government infringing on Americans’ rights — something Senator Jim Jordan addressed head-on in a heated exchanged with Dr. Anthony Fauci on Friday.
In other words, when local or national leaders try to mandate masks (indeed, presumptive Democrat nominee Joe Biden, for example, admitted he’d mandate masks via an executive order) or when leaders assume they wield the power to determine whether or not someone is to go to open their business and earn a living, or when parents are told by local bureaucrats that their children may not return to school? These actions have consequences, economically and emotionally. They encourage people to stay home, shut their wallets, and stock up on only necessary supplies. The result is a depressed economy.
Nonetheless, at a time like this, it’s important to look at the bright side. Hey, it could have been a whole lot worse! Indeed, the GDP number was even slightly better than what economists predicted.
Buying Opportunity? Smart Investors Look For Downturns
Investors that are able to see through the noise and not get bogged down in the emotion of the moment stand to fair best in times like this. Thus, when the market reacts with a violent sell-off such as it did on Thursday, many view this as a small buying opportunity and will seek additional sell-offs to put money to work.
Fundamentally, at least in the short term (I’m not talking about 20 years from now when our debt burden may be too severe for growth…) but, in the short term, I anticipate that we will be in a very different place, a much better one economically, by this time next year. That is, assuming we maintain hospitable economic policy with low taxes and less regulation.
I, for one, am looking forward to putting the last three months behind us. Third quarter GDP is the one to watch.
Our Economy Still Intact … and Don’t Forget the Fed
Aside from the sexy “Worst in 70 years!” headlines, our economy is remarkably intact in light of what our nation has endured in recent months.
Keep in mind, we saw a similar trajectory in the first quarter. The lockdowns that began in the Northeastern part of the country in March had a severe effect on GDP. And, March was just a couple of weeks’ worth of GDP in the first quarter.
And, the Fed ain’t going anywhere.
Indeed, Chairman Jay Powell effectively told us that at the most recent policy meeting on July 30th.
In the lonely days of March, investors would have been wise to remember that the Fed is a backstop and has no intention of allowing a Lehman like 2008 moment to occur. I, personally, am often bothered by the Fed’s backstop because it can lead to investors not weighing risks properly, nonetheless, it is the reality of the world in which we now live.
The Fed, regardless of who is elected President in November, will remain active and aggressive.
Meanwhile, the White House is indicating that it wants to see an extension of unemployment employment benefits. I’m not convinced this is the best course of action and may result in an increasing U.S. debt levels nonetheless, it’s a political year and most politicians don’t want to risk being labeled by competitors as heartless for shutting off the economy – and that’s exactly how they’ll be betrayed. As such, there may still be plenty of consumers with a free $600 a week in the pockets and that money, in turn, gets spent. A near term fix with long term consequences. (LINK TO OTHER ARTICLE HERE)
And then, there’s the real silver lining in all this. Now is an opportunity for new tech companies to emerge as the American work force increasingly shifts towards at-home technology. The behemoths are already seeing the benefits of the change with Apple reporting a whopping 11% increase in sales in the latest quarter as consumers bought products to use at home (and, by the way, that’s with not even all stores being open.) Meanwhile, Amazon saw sales soar as shoppers shopped from home. Business spending however is taking a hit, as evidenced by Google’s revenue decline and Facebook’s slower revenue growth rate though it did still post higher than expected revenue due to engagement from people at home.
The reality is, as scary as these times are—especially for at-risk groups—we will get through this. The economy will grow in new ways but, Americans are still American…filled with work ethic, creativity, and flexibility.
I, for one, am looking forward to third quarter GDP.