The Pandemic Economy Then and Now

By Shane Barber

June 7, 2021

The Pandemic Economy Then and Now

From Prosperity to Pandemic to Prosperity

Key Points – The Pandemic Economy Then and Now:

  • From Prosperity to Pandemic to Prosperity
  • Pandemic Economy Numbers By Sector
  • The Impact of Stifled Travel on the Economy
  • The Big Four Indicators of the Pandemic Economy
  • 9 minute read

The Pandemic Economy Then and Now

From Prosperity to Pandemic to Prosperity

The COVID-19 pandemic will go down in history as one of the worst health events in recent history, causing one of the fastest market crashes in history and ending with one of the fastest recoveries in history. Three incredible distinctions, held by one invisible virus that changed the face of modern history in ways we still haven’t come to grips with yet. 

It seems like only yesterday we were settling in for what we were told was a two-week stay-at-home sprint to “flatten the curve” of the spread. Now, a full year and some weeks later, some states and municipalities STILL aren’t fully open, but we’re definitely approaching the end of this madness. 

Today I’d like to take you on a little trip down memory lane to review where we were when all this started, how far we fell, and how high we’ve risen since the panic began. It’s been an incredible journey, to be sure. I’m going to share with you a lot of charts today, courtesy of our intrepid friends at DShort (Advisor Perspectives), who does yeoman’s work in charting the economy on a daily basis. 

I believe these visual representations will help give you a better understanding of how our lives have been affected by the pandemic over the last 12 plus months. So, set back, relax, and enjoy a hopeful look at where we are now versus where we have been. 

Pandemic Economy Numbers By Sector

Pandemic Economy - Key Markets Since 2-21-20

Figure 1 | Source: Advisor Perspectives

Let’s first look at nine key sectors in the market and how they fared, as measured by several ETF’s that track those individual sectors. Figure 1 starts at zero in February of 2020 and measures the drop and subsequent recovery of these sectors through May 26, 2021. 

The obvious winner in Figure 1 is retail. It fell by 40% early in the pandemic, recovered back to where it was in February by August, and is now 105% above where it was when all of this started. That is a testament to the resilience of the U.S. economy if I’ve ever seen one! 

Coming in second is technology, which is not surprising since technology was instrumental in facilitating much of the business in 2020. Everyone can participate in a Zoom, Go-To, or Teams meeting and is at least relatively comfortable doing so. Technology dropped by a little over 20% early on but was back to where it started by late May 2020 and is now 41.3% above its starting point. 

The losers in Figure 1 are Airlines and Hotels. Airline travel all but stopped, and flights that did take off had less than half of the typical passengers. This caused Airlines to fall by 60% very quickly after the pandemic began. No flying means no one to stay in hotels, and the hotel sector fell by a staggering nearly 80% by the end of March 2020. Today, Airlines are 12.6% below where they started last year, and hotels are still down by 15.2%. They’ve made great recoveries but still have a ways to go.

The Impact of Stifled Travel on the Economy

With all the stay-at-home orders, and the palpable fear among the public early on in the pandemic, it’s not surprising that our driving habits also changed dramatically. The changes in our driving habits also had a marked effect on the hotel industry, which is why the hotel sector suffered the most in Figure 1. Take a look below at Figure 2 showing America’s driving habits.

Pandemic Economy - Estimated Vehicle Miles Traveled

Figure 2 | Source: Advisor Perspectives

Notice that total miles traveled on all roads peaked in January of 2020 at nearly 3.3 Trillion miles! That’s a lot of traveling. By January of 2021, that had fallen by almost 800 billion miles to just over 2.7 trillion miles traveled. When you stay at home, eat at home, entertain yourself at home, and work from home, this is the result. The miles traveled have begun to tick up, but it’s clear that this is the most significant drop in this metric we’ve ever seen. It is likely to have lasting effects on many other market sectors going forward, not the least of which is gasoline sales.

Long-Term Impact on Gasoline Sales

Pandemic Economy - US Total Gas Sales vs Price

Figure 3 | Source: Advisor Perspectives

Notice in Figure 3 how far the total gasoline sales fell in the early days of the pandemic and stay-at-home orders. Total sales were running in the neighborhood of 390,000,000 gallons per day, and they bottomed out at just below 230,000,000 gallons. Today, we’re still only back up to about 320,000,000 gallons a day. That’s about $210 million worth of economic activity that we’re still trying to get back, but a whole lot better than it was in March of 2020. 

Record Unemployment

Since we weren’t driving, flying, eating out, staying in hotels, or going to entertainment venues, Figure 4 shouldn’t come as a surprise. 

Pandemic Economy - Initial Unemployment Claims

Figure 4 | Source: Advisor Perspectives

We went from a record low unemployment rate, both the real rate and the percent of the civilian labor force filing initial unemployment claims, to a record high percentage of the civilian labor force filing initial unemployment claims, in just one month! We’ve never seen anything like that in our nation’s history. Mercifully, that statistic is now back to where it was in 2009 at the end of the financial crisis and still falling. The rate of recovery in that statistic is also something we’ve never seen in our nation’s history. I’m sensing a theme here. 

Job Openings and Labor Turnover

Pandemic Economy - JOLTS Report

Figure 5 | Source: Advisor Perspectives

The pandemic and stay-at-home orders dislocated a substantial portion of the workforce, if only temporary. Layoffs and discharges peaked (the dot in Figure 5 near the top) at over 13 million people in March of 2020. 

At the same time, job openings and hires fell simultaneously, and people who had jobs were uninclined to quit. Today, layoffs and discharges are below where they were in February 2020, as are job openings. 

However, hires have slowed, and there’s a troubling gap in the number of job openings versus the number of hires. Openings are rising, and hires are falling. If you know a business owner or are one yourself, you are already aware of this. It is hard to find people who want to go back to work. 

This is one of the bad things about the way we handled the pandemic. It discouraged people from returning to the workforce. 

Pandemic Economy - Labor Force Participation

Figure 6 | Source: Advisor Perspectives

Pandemic Economy - Labor Force Participation Growth Rate

Figure 7 | Source: Advisor Perspectives

We can see this in Figure 6 and Figure 7 above as well. The first is the Labor Force Participation Rate for men and women ages 25-64 since 1945, and the second is the Labor Force Participation Rate Growth since 2000 by different age groups. Both are a little troubling. However, I believe there will continue to be improvements in both over the next several months. 

Optimistically Looking Forward at the Pandemic Economy

Pandemic Economy - Consumer Confidence

Figure 8 | Source: Advisor Perspectives

The reason I am hopeful that we’ll continue to see improvements in the labor market can be seen in the consumer confidence index numbers and the small business optimism index. The two are charted together above in Figure 8.

Though below their most recent pre-pandemic highs, both indexes have recovered substantially and are moving in the right direction. The consumer confidence index is as high as it was in the late ’90s and higher than in 2007. That is undoubtedly a good sign. 

The small business optimism index is a little less rosy, but only because (in my opinion) many of them, in certain parts of the country, have had a few false starts. Support for them has been sporadic, and they were forced to operate at reduced capacity or remain closed. Now that we are at the end of this mess and they can once again operate normally, I believe we’ll see that index continue to gain momentum. 

Disposable Income and Personal Consumption

Figure 9 | Source: Advisor Perspectives

As you can see in Figure 9, Disposable Personal Income Per Capita has reached a new all-time high. It had set a record just before the pandemic, and due to the stimulus payments that have gone out since that time, it has reached two new record highs. 

Figure 10 | Source: Advisor Perspectives

Notice, Figure 10, how personal consumption also climbed to a new high from its pre-pandemic highs in 2020. This is also an encouraging sign for the long-term health of the economy moving forward. It is also important that people plan for their future and safeguarding themselves against the possibility that something like this may happen again. And they are. Take a look at the personal savings rate in Figure 11 below. 

Figure 11 | Source: Advisor Perspectives

More saving, and more spending, equals more demand for goods and services. More demand for goods and services means more manufacturing, which means more jobs, which means more income earned and even more demand for goods and services. It is a virtuous cycle, and it appears to be forming as we speak. 

Manufacturing Then and Now

Manufacturing is going full speed, trying to catch up to the demand that currently exists, and which has been underserved during the pandemic by slowdowns in output due to faulty predictions of where consumer demand would go. Rather than the anticipated prolonged slowing of demand, we saw a temporary slow down followed by a robust recovery in demand. People found all kinds of projects to get done while sitting at home looking at their houses 24/7. 

Figure 12 | Source: Advisor Perspectives

Figure 13 | Source: Advisor Perspectives

Now manufacturing, in Figure 12 and Figure 13, is attempting to close the gap between supply and demand. There has been price inflation because of dislocation between prediction and reality. However, I know for a fact that supply WILL eventually rise to meet the demand, and likely sooner rather than later. 

The services industry is experiencing the same expansion as manufacturing and is now higher than in late 2018. Take a look at Figure 14 below.

Figure 14 | Source: Advisor Perspectives

This is great news for small businesses, as many small businesses operate in the services sector. They got crushed amid the pandemic, but those that survived are going to do quite well going forward. 

The Big Four Indicators of the Pandemic Economy

Figure 15 | Source: Advisor Perspectives

All of this brings us to the Big Four Indicators, which all show remarkable improvement and all point to continued economic expansion. We’ve discussed them all so far, but it’s fun to see them all in Figure 15

All of this economic expansion has some worried about the potential for runaway inflation. But there’s good news in that arena as well. 

Figure 16 | Source: Advisor Perspectives

Based on the 10-Year Treasury yield in Figure 16 and recent comments from the Federal Reserve Chairman Jerome Powell, it is unlikely at this point that any lasting inflationary trend is underway. With overnight interest rates at roughly 2% pre-pandemic, and now at approximately 0%, and 10-Year Treasury yields currently at roughly 1.6%, the likelihood that inflationary pressure is anything but transitory is quite small. 

Stock Market Valuations

Finally, let’s look at the stock market valuations. In the four years leading up to the pandemic, the stock market made new historic highs on an almost weekly basis, sometimes daily, as did the overall valuation of the stock market. Post-pandemic, we’ve seen a return to daily, weekly, and monthly historic market highs and levels of valuation. Figure 17 below is rather striking. 

Figure 17 | Source: Advisor Perspectives

Immediately before the pandemic, the market’s overall valuation was certainly elevated but was still below the then-record valuations we saw in 2000. 

Since the bottom of the market in the height of the panic over COVID, the valuations have eclipsed those in 2020, in what can only be classified as, you guessed it, historic! The market valuations at this level can tend to make some people nervous, but it is essential to remember two things. 

First, the market can and will remain at elevated levels for far longer than anyone expects. Second, there are two ways for valuation levels to come back to something closer to normal. 

Either the stock prices of the companies that make up the market have to fall, or earnings via increased sales activity have to grow to match the current valuations. The first way is painful. The second way is profitable. Let’s hope we take the profitable route to more normal valuations. And, if the data we’ve looked at here today is any indication, we may well be on our way to doing just that. 

Looking Back to Move Forward

I hope you’ve enjoyed this look back at the incredible journey we’ve all been on together for the last year plus and that you’ve gotten some information or knowledge from this that you can use. 

Have a great week and get out there and enjoy the post-pandemic economy!

Shane Barber

Schedule Complimentary Consultation

Select the office you would like to meet with. We can meet in-person, by virtual meeting, or by phone. Then it’s just two simple steps to schedule a time for your Complimentary Consultation.

Lenexa Office Lee’s Summit Office North Kansas City Office

Investment advisory services offered through Modern Wealth Management, Inc., an SEC Registered Investment Adviser.

The views expressed represent the opinion of Modern Wealth Management an SEC Registered Investment Advisor. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Modern Wealth Management does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.