The Covid-19 pandemic continues to be the dominate news maker in the U.S. and around the globe. Equity markets rise and fall with positive or negative vaccine news, or news of a spike or reduction in cases and deaths. Most medical experts agree that even with the successful development of a vaccine we are still likely a year away from mass vaccinations, and that’s assuming people are willing to get vaccinated. Polling suggests that up to one half of Americans indicate they will not take the vaccine, ultimately delaying a complete economic recovery. During the third quarter, stocks rose and are now positive for the year, although they experienced a sell off in September as worries grew of lingering economic problems. Bonds were also positive during the third quarter, adding to their gains year to date.
The impact of the pandemic on our economy has been profound. Since this started, over 58 million Americans have filed first time unemployment claims. There are almost 13 million continuing unemployment claims. It is estimated that one third of the pandemic related layoffs between March and May of this year will be permanent. Second quarter GDP contracted at an annualized -31%, after a first quarter of -5%. We are seeing estimates of returning to pre pandemic GDP levels anywhere from 3-7 years from now. Another round of economic stimulus from the Federal Government is being discussed but as of now the timing of this is uncertain.
Certain areas of the economy are doing quite well. The performance of the technology sector has been very impressive, as has the housing sector and some areas of the consumer retail sector. Airline, restaurant, hotel, energy, finance, and travel sectors have been decimated. Most of the U.S. economy is driven by the consumer. Consumer confidence crashed in March and April before rallying throughout the summer, plummeted once again in August as Covid numbers spiked, and then rallied again during September. It goes without saying that a confident consumer is essential to a lasting economic recovery, and with Covid numbers expected to rise again this Fall, this will be an important number to watch.
With any recession, a side effect is an increase in government debt. This is due to government stimulus spending as well as decreased tax collections. Unfortunately, the U.S. was running record deficits when the economy was expanding, so our debt is now exploding. At the end of June, our debt to GDP ratio was 137%. Only four advanced economies in the world are higher: Japan, Greece, Italy, and Portugal. This is not very good company to be keeping. Excessive debt is an economic burden for the future. Hopefully when the pandemic is behind us, we can take measures to live within our means better than we have been.
All of us at Wabash Capital hope you remain safe during these difficult times.