Leaving behind a very difficult 2020 and moving into a more promising 2021, most market participants and analysts are interested in how the economy will look like in the near future. Specific questions like is this a time to save or is this a time to spend are raised at this point.
We turn our attention to the US, where according to the Wall Street Journal the economy may have been in a weak position in the last months of 2020. Tougher lockdowns due to an increase in covid-19 cases may have constricted the economic sentiment. Even though we are seeing the major US stock markets closing the previous year at record highs levels and continuing to do so on the first Monday of the year, daily covid-19 cases have surpassed 200K in the US.
Business development and expansion is expected to remain limited in the first quarter based on the lockdown measures forecasted to remain in place including Europe, the UK and Japan. Sticking to the US, the latest agreed-upon fiscal stimulus package totalling $900 billion that will be poured into the economy in the following months is an action that could support the economy by covering some of the gaps created.
The new package includes Stimulus checks, benefits for the unemployed people, loans specifically designed for small businesses, grants for theatres and other live venues, rental assistance and others.
In our opinion, these actions will provide the necessary support for families and businesses but this support can be temporary and not a game-changer. Most probably further actions will be required if the economic circumstances do not improve in the second half of the year.
Despite the slow start of the year some investors are willing to take actions and invest during the current uncertainty. The uncertainty could prove a great opportunity in our opinion, as due to the fear that controls most of the global economy some opportunities are overlooked at the moment.
Of course, it takes courage for investors to act upon certain ideas, yet the ones that do so have more chances of being compensated. Some of the current economic indicators in the US are in focus for the current week and will be released in the following days may be confirming the slow start we are expecting in 2021’s first months.
→Stock Market Analysis from Decmeber 2020: Will the US indexes continue to rise as we get closer to year-end?
In the following days, the ISM Manufacturing PMI monthly figure for December will be released. Even though the economic indicator has been improving since April, overall and has dropped only in September and November, the December reading is forecasted to drop also. My opinion is that the expectations for the reading to drop are based on tighter lockdowns measures in the US in December.
Similarly, the ISM Services PMI has seen an improvement in all months except August, October and November for 2020. December is also forecasted to be a negative month for the indicator possibly due to the same reasons.
Furthermore, on Friday we get the US employment report. US Jobs created have been on a decline since July making it evident that businesses are finding hard to add new employees to their operations.
We could go even further and say that as long as Covid-19 cases are on the rise in the US and the global economy, consumer and general economic sentiments could remain in decline. We are connecting the performance of the pre-mentioned sectors in the previous months to the next months’ economic activity because we may be seeing a continuation of these circumstances at least until spring.
Despite the unclear economic circumstances expected in the first part of 2021, we have come across information that confirms consumers are currently approaching the negative circumstances, defensively.
According to the Wall Street Journal, the US’s personal saving rate was 12.9% in November. Even though the figure may seem small to many market participants, it is much higher than the 7.5% rate a year earlier. It could be said that the savings per consumer could be a promising sign for increased spending in the future, and after lockdown measures are eased, and more people are vaccinated.
However, vaccination is still being rolled out, and the confidence in spending is expected to kick in after the first half of 2021. This timeframe of 6 months could contribute further to the savings not only to US citizens but also to many people worldwide that could intensify further investing, spending or business booming, once the positivity returns.
A happening that is most probably to have increased US consumer savings is the low-interest rates that the Federal Reserve was quick to bring forward. Perhaps, low-interest rates are expected to remain in the picture for the next couple of years, encouraging consumers to spend more on other goods or save more money as lower rates reduce their monthly mortgage payment. Evenly, a low-interest-rate environment supports borrowing or purchases, which is also an advantage for businesses and consumers.
Finally, circumstances in the past months which are currently even worse, have hurt retailers and their sales. Special events like Black Friday or Cyber Monday did not see the expected interest by consumers in November. The events were said to be used as indicators for the retail sector’s further performance, which is taken very seriously towards the overall activity of an economy.
Retail sales are a significant economic reading because consumer spending contributes heavily to the growth of the economy. To produce the goods that the retail sector includes, many people and companies are working to produce, distribute, and sell the goods consumed daily, further magnifying the sector’s importance.
Looking forward and after the research performed for this post, I cannot see the circumstances being very bright for the US economy.
Yet, as we have mentioned before intensive vaccination, low-interest rates and the possibility of further and greater fiscal spending once Biden takes office, underpins a swifter recovery of the US economy. Thus analysts expect the GDP growth rate to outperform expectations in 2021 and possibly recovering more ground than the contraction suffered in 2020.