William D. Johnston

Chairman

Economic Commentary

Resilience has always been an important part of our country’s history. The pathway to our current condition has not been simple or easy, but rather gut-wrenching and somewhat terrifying from time to time. A close examination of our country’s history reveals just how much we have overcome and endured during the past 245 years. Global and civil wars, numerous geopolitical crises, natural disasters, global pandemics, economic depressions as well as recessions and 60 presidential elections, have all tested our resolve if not the very fabric of our democracy. Along the way, we have faced and not always cured the issues of racial and gender inequality, nor the persistent and growing wealth and income disparity. Yet we continue on our journey to achieve what our founders described as “a more perfect union.” The significant challenges encountered during 2020 meet head on with the promise and opportunity emblematic in the new year of 2021. As we look forward to this new year, what will our guideposts be? How shall we measure our progress?

In Mid-January, Nick Juhle, our Senior Vice President and Director of Research and I had the opportunity to share, through a virtual platform, our company’s collective wisdom on our economic and financial market forecast for 2021. In years past, we would travel around the state and meet together with clients and friends of Greenleaf Trust. COVID-19 denied us that opportunity this year; thus, we presented in a digital format. While not our favorite communication method, we hope the information was helpful.

During our forecast, we introduced some essential messages. Our return to pre-COVID-19 economic strength will not occur until our nation’s resistance to the pandemic is achieved. Our pathway to that resistance is, and must be, inoculation of at least 70% of our population. While there is debate about the exact number and percentage necessary, 70% certainly covers the most vulnerable as well as the most mobile portion of our population. Today, approximately 30 days into the vaccine distribution, how are we doing? As of January 30, the CDC has records that include 20.7 million vaccinations and 5.1 million second doses being administered. The average daily dosage administered is now slightly in excess of 1.1 million. If we are able to maintain that level of dosage per day, we would achieve the 70% threshold in the middle of September of this year. There will be challenges to overcome on the pathway to success, most of which are logistical in nature, mixed with some political implications as well. A growing theme among those designing the logistical distribution seems focused on a “barbell” approach that includes the most vulnerable classified by age and morbidity (65 and older and those with pre-existing conditions), as well as expanded definitions of frontline workers to include teachers, first responders, grocers, delivery personnel and home healthcare providers.

The duration of time in the administration allows for the continuation of research on vaccine safety for children and introduction of more single dose inoculation alternatives. Though new viral strains are emerging, the efficacy news is encouraging. Those who have received the vaccine yet also contract COVID-19 have significantly reduced symptoms and effects as well as 100% survival rates. Progress is being made, and the passage of time while achieving consistent improvement in distribution and inoculation rates will get us to the benchmark target on or before mid-September. Simultaneously as we pass through this duration of time, our economic recovery will continue.

Beginning in the first week of March 2020, we began to follow closely and publish the New York Federal Reserve Weekly Economic Indicator (WEI). As a reminder, this real time indicator assembles multiple data points around consumption, production and labor. The objective of this exercise is to measure where our economy (GDP) is in real time, versus where it was twelve months prior to that measurement. During the second week of March 2020, the WEI measured -14.87, reflecting a real time GDP change more dramatic than the depression of 1929. March unemployment later revealed that in excess of 21 million people lost their jobs within a three-week period and the unemployment rate soared to 14.7%.

Currently the WEI is steady at 2.17% reflecting a gain of 12.70% and the unemployment rate has declined to 6.3% or 10.1 million people. The decline and recovery of the economy has been somewhat characteristic of a V-shaped recovery, though it is not yet complete. A closer examination of the labor statistics indicates that a full recovery of employment is not likely to return until the industry sectors of hospitality, retail, food and beverage, entertainment and travel improve, and that improvement is tied directly to success in vaccination accomplishment. Recently several states have eased in-house dining restrictions and at least three airlines have begun the recall of furloughed workers; thus, the expectations for improvement in these industries is warranted.

During the second quarter of 2020, we saw a dramatic 10.7%, or $2.3 trillion, contraction in our GDP. Quick action by Congress saw multiple direct-to-consumer stimulus packages acted upon. Year-end data demonstrated that the full year GDP results will probably reflect an economy of about 21.2 trillion dollars signifying an almost complete recovery relative to 2020 consensus expectations. This recovery validated direct payments to families, extended and amplified unemployment benefits as well as comprehensive SBA loan opportunities to sustain payrolls.

As we related in our year-end seminar, although consumer activity remained robust, not all stimulus was spent — in fact, the average savings rate of consumers doubled to 10.7% (historically our national savings rate is approximately 5%). This significant rise in savings bodes well for 2021 GDP forecasts and suggests that as consumer confidence grows during the vaccine administration they are likely to spend some of their increased savings, further assuring that economic and employment recovery will take place. The Biden administration has rolled out a $1.9 trillion stimulus plan that is currently being debated in Congress. The elements of the plan are targeted to continue consumer strength, vaccine administration, state budget and education support. Democrats can pass the plan without the support of Republicans; thus, it is a question of whether the President wants the symbolic victory of bipartisanship or his campaign promise fulfillment. No president since George H. Bush has enjoyed bipartisan support of their first legislative package in their presidential tenure. This trend in place would suggest that President Biden will go it alone and push for the $1.9 trillion dollar package supported by the current Democratic majority. Whether the final result is the plan as presented or a lesser amount sought to seek some form of bipartisan passage, the result will be extended and enhanced unemployment benefits, additional SBA loans, direct to consumer payments, support for vaccination expenses for states and increased aid to education. All of the above should maintain consumer spending and GDP growth during the first half of 2021.

COVID-19 Updates

As of February 21

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