Last fall and into winter, coronavirus cases were surging, and hospital capacity was strained in harder-hit regions around the country. You’ll recall markets maintained an upward trend through it all, even leading some to ask whether investors were growing detached from reality. But we reminded investors at the time that markets are forward-looking, and prices reflect the future and not necessarily circumstances as they are today. Once a successful vaccine became a certainty, markets quickly “priced in” a return to normal in early summer, assuming a rollout that went to plan.
Six months later, it appears markets weren’t detached from reality at all. Sure, a more virulent delta variant is causing concern, but with roughly two-thirds of adults in the U.S. having received at least one shot, the country has largely returned to normal. Arenas are filled with cheering fans; restaurants are open; Independence Day travelers neared records. By a host of economic measures, we’ve come full circle, and many wounds from 2020 are healing. Halfway through 2021, focus is now shifting to more traditional metrics of the business cycle, such as inflation, productivity and employment. We have moved from an economy that was in crisis to an economy primed for growth.
WALL STREET WRAP
Consumer Confidence Soars: Consumers haven’t been this optimistic about the economy since the months preceding the pandemic’s arrival. The Conference Board’s Consumer Confidence Index reached 127.3, up from 120 in May, the highest level since the initial coronavirus surge in March 2020. The Present Situation Index, which measures consumers’ assessment of current business and labor market conditions, rose from 148.7 to 157.7. Only 10 percent of consumers expect business conditions to worsen, and 54.4 percent of those surveyed said jobs are plentiful (up from 48.5 percent in May), which is the highest percentage since July 2000.
While inflation concerns are growing, they did little to put a damper on consumers’ purchasing intentions or views on the labor market. The share of consumers planning to purchase homes, automobiles and major appliances all rose, a further indication that spending will continue to support growth. Case in point: Pending home sales rose 8 percent in May compared to April.
Restaurant, Airline Traffic Exceeding 2019 Levels: Airlines and restaurants took an outsize share of the damage wrought by the pandemic, but both industries are now reflecting a return to normal. Daily TSA throughput far exceeds 2020 lows and is nearing the pre-pandemic 2019 level. Many travelers are even experiencing delays or cancelled flights as airlines have some trouble keeping up with demand.
In addition, according to OpenTable data, walk-ins and reservations at restaurants in the U.S. have exceeded 2019 levels a few times this summer. On July 1, for example, restaurant traffic was 13 percent higher than the same day in 2019. Last year at this time, reservations were down 59 percent compared to 2019. Not only does OpenTable show the sector has regained its pandemic lows, there’s even modest yet tangible growth compared to 2019 levels.
Job Growth Accelerates: The U.S. added 850,000 jobs in June, the largest gain in 10 months. Wages also rose sharply, with the average hourly pay of private-sector employees climbing 3.6 percent in June compared to last year. Digging deeper, the number of Americans who say the pandemic is hindering their job search fell by 900,000 to 1.6 million last month.
The unemployment rate ticked up to 5.9 percent from 5.8 percent, but that’s counterintuitively a positive signal. That’s because more people have come off the sidelines and started searching for jobs, which technically pushed the unemployment rate higher. In all, it was a positive report that was well received by markets to close the week.
THE WEEK AHEAD
Fed Minutes: This week we’ll comb through minutes from last month’s Federal Open Market Committee meeting to get a better sense of the discussion between board members. Following the FOMC meeting, Fed governors appeared in the press and offered a variety of takes on inflation’s trajectory and the timeline to a rate hike. The Fed’s dot plot isn’t policy, and any timeline is subject to change as conditions change, but markets do pay attention to the tone and ways key issues are framed in the meeting minutes.
Data From Europe: This week we’ll receive retail sales and industrial production data from major eurozone economies. These data are worth tracking, as the eurozone is staging a recovery not unlike the one here in the U.S. — it’s just lagging by a few months due to a slower vaccine rollout in the region. And, so far, data show these economies are virtually mirroring the U.S. recovery that accelerated in spring.
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