U.S. economy growing as COVID-19 waning

As we near the midway point of 2021, and as the economic impact of the COVID-19 pandemic begins to wane in the United States, it's time to assess the nation's economy — where it is and where it appears to be heading.

The following are insights offered to the Missourian last week by Scott Colbert, chief economist and director of fixed income management with Commerce Trust Co. in St. Louis.

• The economic forecast

"The U.S. economy is hot, hot, hot, and maybe even you could suggest (it's) on fire," he said. "Right now, GDP is tracking north of a 10% annualized growth rate."

Colbert said the 10% rate is based on unofficial GDP estimates calculated by the Federal Reserve Bank of Atlanta in its "GDPNow" forecast.

"It's nearly the highest that we've seen out of the GDPNow forecast and you add the 6-plus percent that we grew in the first quarter, 10-plus percent in the second quarter and you're talking about 8% growth and we haven't had 8% growth in this country since 1983," he said. "So you're going back almost 37 years to see growth rates that approach that."

• What's driving growth?

"Well, clearly the key driver is still U.S. government stimulus," Colbert said. "The government has provided $6 trillion of stimulus either directly or indirectly to the economy. It's hard to keep track of what a trillion dollars is, but we're running a $22 trillion economy, so divide six into 22 and basically you get about a 25% boost of economy activity in a short period of time, and that's what's creating this exceptionally strong burst."

In addition, Colbert said "with rising stock prices and rising home prices, consumer net worth is at record levels, savings is at record levels and clearly there is some pent up demand for goods and services and we're seeing that as the economy reopens."

• Vaccines are providing 'shot' to the economy

"Clearly the vaccine and the (rate of) coronaviruses coming down afford us an exceptional opportunity to reopen, and almost all states are doing that," Colbert said. "Broadway is reopening in the fall, you see nearly full baseball stadiums again and (fans at the) NBA playoffs and folks in the hockey arenas. The economy continues to reopen (and) with it employment continues to grow. And, of course, wages and salaries are growing and this all continues to compound on itself."

• How does this affect the stock market?

"Well, of course, stocks are up," Colbert answered. "The S&P 500 is up almost 12%. It's within breathing distance of its record high, which it reached on May 7th. Small-cap stocks continue to outpace large-cap stocks. International stocks are somewhat behind U.S. stocks, but that makes sense because the international markets have yet to reopen. There's a positive tail wind likely to come as Europe reopens and we're already starting to see it in their stock markets."

• What about emerging markets?

"Emerging markets are still having tremendous troubles in India and Brazil and they're coming on with the biggest lag," Colbert said. "But (those markets) should support growth going forward as the vaccines get distributed around the world and hopefully we get a handle on the global coronavirus cases like we have in the United States, the United Kingdom, Israel and more and more now in Europe."

• What does this mean for bonds?

"Well, not a heck of a lot because interest rates have risen," Colbert said, adding the "10-year treasury was 90 basis points at the beginning of the year (and) it's 1.6% today. As interest rates rise, of course, bond prices tend to fall, and the total return on the bond market has been negative versus those very, very positive stock market returns."

• Investment strategies

"We expect to maintain a 'risk on' strategy largely because interest rates remain so low (and) inflationary pressures continue to build," Colbert said. "The core personal consumption expenditure index just came out (and) it's 3.1% on a year-over-year basis. That's the key statistic the Fed focuses on in inflation, so when you talk about the Fed's inflation, they're not worried about the CPI (consumer price index) or even the core CPI; they're worried about this thing called the core personal consumption expenditure index and it's finally above 2%."

That growth, Colbert said, could be derailed if there is a resurgence of the coronavirus.

"We have seen new variants show up in Vietnam, which are a combination of variants from the United Kingdom and India," he said. "It's a global virus and it has a way of morphing pretty quickly."

• Taxes and cyberattacks

"Clearly, the Biden administration, in order to pay for some of this economic stimulus and perhaps even an infrastructure bill, (is) intent on raising taxes at a marginal rate, plus capital gains on the wealthy, probably even on a retroactive basis," Colbert said.

"And then there are odd things like cyberattacks (such as the) shutdown of the Colonial Pipeline and our largest meat processing facilities here in the country" he said in reference to last week's cyberattack on JBS, which temporarily impacted chicken, pork and beef distribution around the world.

"So we're not out of the woods yet, but we still remain optimistic on the economic outlook," Colbert said.

The 'junk mail' file

Like many of you, I probably receive around 100 work-related emails a day — sometimes as many as 150 or 200.

Most of them I can safely ignore. I mean, it's nice a software developer in Palo Alto has come up with a new cloud-based gaming platform that can "for the first time ever, deliver the same graphics and high performance interactive play regardless of device" and a financial advising firm in Chicago is ramping up its efforts to deter fraud, but I'm more interested in reporting business news that has a direct impact on you, your family, your business and your community.

However, it appears I may have missed some newsworthy emails from certain business sources because their messages were channeled into my "junk" file.

To help make sure your business news emails get to me, please send them to both jwolz@semissourian.com and business@semissourian.com.

That way, at least one of them should make it into my inbox.

Thanks!

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