Economic Outlook - April 2021
- U.S. Non-Farm payrolls saw a major increase of 916,000 jobs for March, far surpassing the estimates of 67,500. The unemployment rate peaked just short of 15% in April 2020 numbers. By March of 2021, the unemployment rate edged down to 6%. Many leisure, hospitality, and food service jobs remain furloughed or lost, but there remains hope for these workers as this sector saw the largest gains in March. As the vaccine rollout continues to gain momentum, the employment rate should continue to see improvements.
- Manufacturing saw one of the largest booms in reporting history in March. The Institute for Supply Management’s monthly survey saw 64.7% of company respondents seeing an expansion in the month. This was a 3.9% increase from the month prior, the largest month over month pickup since December of 1983. Managers have reported tumbling inventories, rising demand, increased cost of goods, and a backlog in supply chains delaying deliveries of finished goods and raw materials alike. All of these inputs provide important forward-looking data for larger metrics such as GDP and inflation. If survey participants are proven correct, we will see a lift in both.
- In the fourth quarter of 2020, savings, checking and other cash equivalents rose by $2.8 trillion, or 21%, from a year earlier. This money in the bank is what economists refer to as pent up demand. Unprecedented savings rates reflect enormous amounts of fiscal stimulus with limited outlets for spending. Household net worth likewise swelled to $122.9 trillion through December 31, 2020 from $111.4 trillion in the prior year period. These numbers signal that there is plenty of excess cash to power an economic boom if we reach herd immunity. The market is continuing to price this in.
- Each of the above statistics is driving inflation expectations upwards, as we see an economy that is heating up, with massive amounts of cash to deploy from consumers, while herd immunity appears on track for the summer. Many deflationary trends have been present for decades to offset the building traditional inflationary pressures, including 1) the globalization of production, which leads to lower labor costs, 2) possible increases in rental vacancies, which leads to lower rental costs which represents approximately 40% of the core CPI (Consumer Price Index inflation gauge), 3) lower demand for travel and leisure 4) and most importantly, the role technology plays as a deflationary component from robotics to cloud storage and even online sales, which have reduced the requirement for store fronts and excess real estate costs.
Sources: Bloomberg LLC, FactSet, U.S. Department of Labor
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