US Recovery: Cautiously Optimistic - More of a "✓" Than a "V"

We have upgraded our near-term economic outlook on the US economy, as some encouraging economic data has come out recently. However, the ongoing COVID-19 crisis, including recent spikes in cases throughout the country, ongoing social distancing measures, international and domestic tensions, and the threat of a return of lockdowns means investors should not get too complacent.

Back from the Abyss: Green Shoots Sprouting Throughout the US Economy

While it is welcome news that the US economy is re-opening, and economic activity is slowly getting back to normal, the recovery is not evenly spread throughout the country. The latest Google mobility data suggests that US states such as Idaho and Montana have essentially returned to their pre-COVID-19 levels in terms of economic activity, in areas such as entertainment, restaurants, and retail. However, in other areas of the US, such as in Illinois and Michigan, such activities are still down 20%-30%, while in the most populous coastal states, such as in California, New Jersey, and New York, these activities are still down close to 50% from their pre-pandemic levels.

Despite this lower traffic, some recent economic data has indicated that there are green shoots sprouting throughout various areas of the US economy. Vehicle sales have been rebounding in recent weeks, as cash-rich buyers have entered the vehicle market in search of deals. According to data analytics and consumer intelligence company JD Power, the typical car buyer is around 50, indicating that demographics is playing an important role in this recent uptick in vehicle buying. This specific customer demographic tends to be older, have a strong credit history, and is more financially stable. This group is currently in a better position to take advantage of some of the car deals currently available, due to the COVID-19 pandemic, relative to a someone working in a cyclical industry, or who has just lost their job in recent months.

Further, mortgage applications for home purchases have risen for eight straight weeks, to record some of the best activity not seen since the 2005 housing boom. Falling mortgage rates, due to record-low interest rates, have boosted housing affordability, and subsequently housing demand. Increased consumer preference for new, high-tech homes with amenities for both school and work, a sharp contraction in the supply of existing homes available for sale, and a growing desire to flock to the suburbs amongst city dwellers, are some of the major catalysts increasing housing demand in recent months.