Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen have said that if there is inflation, it will be “transitory,” meaning a short-term phenomenon. The argument is that COVID-19 has disrupted global supply chains, resulting in price increases for various goods. Once these disruptions are fixed, inflation should subside. It is like when gasoline prices spike during a hurricane, then fall once the supply comes back online.
Anyone who has driven on the roads lately or traveled by plane knows that America’s infrastructure could use an upgrade. Fifty percent of Michigan’s state and county roads are rated as being in “poor” condition. State roads are in better shape, but their condition is projected to deteriorate and be in poor condition within the next five years. Flying involves crowded airports and flight delays in part due to too few runways and an antiquated air traffic control system. Thus, the $2 trillion infrastructure bill proposed by the Biden Administration could potentially make a big impact.
On March 11, President Biden signed the $1.9 trillion COVID-19 Relief Bill. Although many Americans will welcome the $1,400 checks and other benefits, the bill presents numerous issues.
During the last week of January, the price of the GameStop Corporation stock increased from $20/share to nearly $350/share. The GameStop business model was thought to be in trouble as video game purchases moved online. According to the data collection company, Statista, about 83% of video game purchases are currently made online, compared to 20% in 2009.
Between March 2020 and January 2021, the price of a Bitcoin skyrocketed from $6,000 to $40,000. This leads to the question of whether Bitcoin is a “bubble” like the dot com stocks were in the late 1990s and the housing market was in the mid-2000s. It is hard to identify a bubble; just because an asset’s price sharply rises does not mean there is currently a bubble.
Twenty-million jobs were lost in April due to the shutdown, representing 20 years of job gains. There was a solid recovery early this summer, with 2.7 million jobs created in May and 4.8 million jobs created in June. However, the rate of job creation has steadily declined since then, so that only 245,000 jobs were created in November.
To mitigate COVID in the winter months, there will likely be calls for another economic shutdown. However, a second shutdown could be catastrophic for our economy and thus, should be avoided at almost all cost.
The recovery in air travel following the COVID-19 shutdowns has stalled and remains at about 40% of 2020 levels. Corporations such as General Motors have extended work-from-home until at least 2021 and could likely extend it after that until the coronavirus vaccine is widely distributed, namely until the second-half of 2021. Working from home likely curtails business travel, as well. While it is just over 10% of air travel, business travel represents about 75% of airline revenue. Business travelers are more likely to book expensive, premium seating in the first class cabin. The cost of a first class ticket is at least double that of an economy class ticket for domestic travel and can be ten times as expensive for international travel. Since this class of service does not represent a proportional increase in airline costs, these higher prices represent a significant proportion of airline profits. Business travelers are also less price sensitive than vacationers, since they have less flexibility when or where they travel to and are not paying the cost of travel out of their own pockets.
We are now over 150 days into “15 days to stop the spread,” which began in mid-March. Consequently, a quick, “v-shaped” economic recovery is not possible. The recovery will be gradual and prolonged, though there are signs of recovery. Monthly job growth has exceeded expectations since May, and the economy contracted by less in the second quarter than people were expecting. The unemployment rate peaked at 14.7%, well lower than the Great Depression level of 25% that many also expected. The economy is recovering, albeit more slowly than we had hoped it would when the shutdowns first began.
COVID-19 and the wave of shutdowns that followed resulted in the worst recession since the Great Depression. Had the pandemic not occurred, 2020 would have been a lot like 2019, a year of peace and prosperity. Certainly, there are reasons to be pessimistic. What are some reasons to be optimistic?
Concerns have been raised by some that the COVID-19 recession will lead to economic deflation, while others say inflation. Which outcome is more likely?
The COVID-19 coronavirus spooked the markets. The Dow Jones Industrial Average lost nearly 3,600 points during the last week in February, and had large swings the following week.
