A different kind of recession and recovery
The strength of the US economy (and stock market) remains a mystery to many given the high levels of unemployment and remaining lockdowns in several large states. We have never lived through a government mandated recession followed by a government engineered recovery so using economic history as a guide hasn’t worked. The economy is much stronger than anyone expected and investors should guard against undue pessimism.
Consider the following:
The exodus from major cities continues and demand is high for single family homes large enough to accommodate those working from home. The chart below shows housing starts, with all the growth in single-family homes (blue line).
Home purchases drive other categories such as home improvement, furniture, and major appliances. Then there’s the rush to buy more electronic equipment by the “work-from-home” crowd.
Below you can see that both container traffic and truck tonnage have reached record levels—powerful evidence of strength in consumer spending.
And then there’s the boom in motor vehicles, especially light trucks. Unit sales are near records for all cars and trucks, but the chart below suggests we are buying more expensive vehicles. The chart shows dollars spent, not unit sales—up $50 billion from a year ago.
Robust consumer spending combined with high unemployment is unprecedented, but the Federal government has never flooded the system with so much cash. Add to that businesses that are able to operate, while employees work-from-home, and you have the ingredients for very healthy US consumers.
As for the stock market, weakness has been concentrated in travel, while many publicly traded companies thrive on the back of those consumer dollars.
Daniel A. Ogden