History in the making

Slowly returning 

As states have started reopening, economic activity has returned effectively across the board. The ISM Manufacturing Index increased slightly to 43.1% in May, from its 11-year low of 41.5% in April. The services side of the economy climbed back a bit stronger, coming in at 45.4% in May, after falling to 41.8% in April. 

Moral of the story: Readings of ISM indices below 50% indicate contractionary environments, so no doubt we’re still in a tough spot, but an economic recovery is under way. Whether we can continue to snap back at healthy levels is yet to be seen. Whether we are impacted by a second wave of COVID-19 outbreaks is yet to be seen. 

Slight rounding error

Job losses have been a critical part of this crisis, mainly because the level at which jobs disappeared is unlike we’ve ever seen before. Jobs numbers, which have historically been in the hundreds of thousands, are all of a sudden reported in millions, and a couple hundred thousand jobs amount to simply a rounding error. Economists were expecting a loss of 7.25m jobs in May, but we somehow gained 2.5m jobs in the month. The error there is almost 10 million, which makes me question the efficacy of either the data or the intelligence of economists of this country. Bars and restaurants, which had accounted for 6m of the job losses in March and April, saw the largest job gains as they recalled 1.4m workers in May. Other industries that saw gains included construction, retail, manufacturing, and healthcare. 

Moral of the story: Part of what happened in the last two months was a massive transfer of payments – employers effectively shifted the burden of their “people” costs onto the government in the form of unemployment benefits during the crisis. But as their business returns, they’ll bring those employees back onto their payrolls. These jobs will be quick to return. It will take much longer for employees of businesses that couldn’t survive the crisis (think many retail businesses or local restaurants) to find new employment – that part of the recovery will be a long uphill battle. Even after this month’s gains, there are about 20m fewer working Americans than pre-COVID levels. Yet the stock market is only down 1.5% compared to the beginning of the year when we were sitting at historically low unemployment levels. If you’re scratching your head, so am I because yes, this seems disconnected from reality.

It’s officially official 

An important update on the political front – Joe Biden has officially won enough Democratic delegates to win the Democratic party nomination. This is more of a formality given the rest of his competitors have dropped out of the race, but it’s now official. 

Moral of the story: Across polls and the Vegas betting scene, the odds of Biden trumping Trump in November have been increasing for months. The civil unrest over the last few weeks has just exacerbated the situation. The level of “woke” in this country has really improved over the last few days and I think (hope) people are actually learning about how their vote at the polls impacts policies around issues they feel passionately about. Excited to see how current events impact voter behavior this election cycle.