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Post Pandemic Economy Recovery

Post Pandemic Economy and Recovery

Post Pandemic Economy and Recovery. There has been a slate of articles about the post pandemic economy and recovery. It seems a bit early since the news headlines are now talking about the delta variant. But the Gross Domestic Product or GDP surged 6.5% in the second quarter. This was lower than expected but mostly this miss was caused by supply chain backlogs as manufacturers ramp up after a period of lower activity that is causing inflation worries. This growth was on top of a 6.3% increase in Q1 2021, and a 4.3% increase in Q4 2020. The drop in economic output was severe during the initial sates of the pandemic and there was a bounce back, and now the U.S. economy is growing faster than it has in years. As I pointed out in my end of 2020 Year in Review article, Congress and the U.S Federal Reserve rode to the rescue with unprecedented stimulus totaling trillions of dollars.

US GDP Post Pandemic Economy
Source: U.S. Bureau of Economic Analysis
Post Pandemic Economy Recovery
Post Pandemic Economy Recovery

Will the Robust Post Pandemic Economy and Recovery Continue?

Is it all and only stimulus that is driving the economic recovery though? There are those that argue once the stimulus wears off the economy will not do as well. There is probably some validity to that point of view, and the U.S. will eventually return to more normal growth patterns. However, the data shows that the robust economic recovery should continue through 2021 and at least into 2022. Let’s take a look at some chart’s from First Trust’s Economic blog, which is a great source of information on the post pandemic economy and recovery.

Jobless Claims – Post Pandemic Economy and Recovery

Jobless claims spiked in 2020 to over 20 million at its peak in May 2020. This was much higher than in 2019. But after the spike jobless claims trended down to about 5 million at the end of 2020. Jobless claims are still trending down in 2021 and are near 3 million now. But the jobless claims are still above levels in 2019 and the rate of improvement is decelerating. This means that the economy is not out of the woods yet. But it also means that it is likely the post pandemic economy and recovery will stay elevated for at least a few more quarters until normal levels of jobless claims are reached.

US Jobless Claims Post Pandemic Recovery

Rail Car Traffic and Steel Production

Both rail car traffic and steel production are pretty much back to normal and at 2019 levels. You can see that both metrics were severely depressed in 2020. This recovery of these two metrics is a good sign for much of U.S. industry and manufacturing. However, if we view 2019 as a baseline it means that these two metrics are indicating that the U.S. economy and especially manufacturing is doing well, and this may continue for the rest of 2021. There is still a nearly $1 trillion infrastructure bill in the works, and it is increasingly likely that it will be passed. This should boost the U.S. economy and manufacturing.

Services Struggling – Post Pandemic Economy and Recovery

But what about the service economy, which is by far the largest part of the U.S. economy. Services are not doing as well in this post pandemic economy and recovery. Metrics like air travel, hotel occupancy, restaurant reservations, box office sales, and so on plunged in 2020 during the nadir of the pandemic. These metrics have recovered some but not as much as desired. All of these metrics pretty much went to zero in April and May of 2020. We are well above that now but still not near normal for some metrics. 

Air travel in the U.S. has almost returned to normal but there is still more to go for global travel. TSA checkpoint activity is near 2 million travelers but that is still about 500,000 below normal for this time of year. Global commercial flights are still about 25% lower than normal. This means that further recovery in air travel as vaccination rates rise around the world should continue to drive economic recovery.

Air Travel - Post Pandemic Economy and Recovery

Hotel occupancy has recovered quite a bit but it is still below normal despite higher vaccination rates and reopened economies. Business travel is still down as businesses have changed their work models. Regular consumer travel has recovered but here are still people who are not staying in hotels.

CNN is also tracking some recovery statistics. They show that box office sales are still about 50% below pre-pandemic levels. It is unclear when people will go back to the movies. Why sit in a closed room with people who may or may not be vaccinated when you can stream on your home entertainment system?

Final Thoughts on Post Pandemic Economy and Recovery

I hope that these charts and metrics are useful. The U.S. and global economies are recovering post pandemic. The recovery started in late Summer 2020 but we are still far from normal. Initial it was a tale of two recoveries as the rich recovered rapidly and the rest did not. There is clearly further to go before we return to pre-pandemic levels. A return to normal combined with stimulus should drive economic growth. There are still large parts of the economy that are not at 2019 levels, if we consider that to be a baseline. Furthermore, consumers are not yet really spending on their credit cards as seen below, at least compared to before the pandemic. If this metric recovers it is likely robust economic growth will continue into 2021 and 2022.


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Chart or Table of the Week

Today I highlight United Parcel Service (UPS). UPS reported earnings this past week that solidly beat estimates. But the logistics giant set guidance below expectations and said operating margins would decline. This is not a surprise though as consumers are starting to shop more in stores as vaccination rates rise and states reopen. Additionally, costs for fuel, labor, and almost every other category are rising. UPS’ stock price dropped about (-10%) in the past week. The dividend yield is now about 2.1% and the payout ratio is a very conservative 36%. You may want to consider this Dividend Contender with 12 consecutive years of dividend growth on the dip. The screenshot below is from Stock Rover*.

Source: Stock Rover*

Dividend Increases and Reinstatements

I have created a searchable list of dividend increases and reinstatements. I update this list weekly. You can search for your stocks by company name, ticker, and date.

Dividend Cuts and Suspensions List

I updated my dividend cuts and suspensions list at end of July 2021. The number of companies on the list has risen to 527. We are well over 10% of companies that pay dividends having cut or suspended them since the start of the COVID-19 pandemic.

There is one new company to add to the list this past month. This company is Shell Midstream Energy Partners L.P. (MPLX).

Market Indices

Dow Jones Industrial Averages (DJIA): 34,935 (-0.36%)

NASDAQ: 14,673 (+1.11%)

S&P 500: 4,395 (-0.38%)

Market Valuation

The S&P 500 is trading at a price-to-earnings ratio of 34.3X and the Schiller P/E Ratio is at about 38.2X. These two metrics up this past week. Note that the long-term means of these two ratios are 15.9X and 16.8X, respectively. 

I continue to believe that the market is overvalued at this point. I personally view anything over 30X as overvalued based on historical data. The S&P 500’s valuation came down as companies in the index reported solid earnings lapping a very tough Q2 2020. The post pandemic economy and recovery is doing well.

S&P 500 PE Ratio History

Source: multpl.com

Shiller PE Ratio History

Source: multpl.com

Stock Market Volatility – CBOE VIX

The CBOE VIX measuring volatility was up over 1 point this past week to 18.24. The long-term average is approximately 19 to 20. The CBOE VIX measure of the stock market’s expectation of volatility based on S&P 500 index options. It is commonly referred to as the fear index.

Source: Google

Fear & Greed Index

I also track the Fear & Greed Index. The index is now in Fear at a value of 24. This is down 8 points this past week.

There are seven indicators in the index. They are Put and Call Options, Junk Bond Demand, Market Momentum, Market Volatility, Stock Price Strength, Stock Price Breadth, and Safe Haven Demand.

Market Momentum is indicating Neutral. The S&P 500 is 6.65% over its 125-day average. This is further above the average than normal over the past 2-years.

Market Volatility is set at Neutral. The CBOE VIX reading of 18.24 is a neutral reading.

Junk Bond Demand is indicating Neutral. Investors are accepting 2.02% yield over investment grade corporate bonds. The spread is down further from recent levels indicating that investors are taking on more risk.

Safe Haven Demand is in Extreme Fear. Stocks have similar returns to bonds over the past 20 trading days. This is still close to the weakest performance for stocks over the past 2-years as investors move back into bonds.

Put and Call Options are signaling Extreme Fear. In the last five trading days, put option volume has lagged call option volume by 49.37%. This is still amongst the highest level of put buying in the past two years.

Stock Price Breadth is indicating Extreme Fear as declining volume is 1.70% more than advancing volume on the NYSE during the last month. This indicator is near the lower end of its range over the past two years.

Stock Price Strength is signaling Extreme Fear. The number of stocks hitting 52-week highs compared to those hitting 52-week lows is at the lower end of its range.

Source: CNN Business

Economic News

The U.S. Census Bureau reported that new orders for manufactured durable goods increased 0.8% to $257.6 billion in June. This increase follows a 3.2% increase in May, and it has seen an increase thirteen of the last fourteen months. Shipments of manufactured durable goods increased 1.0% in June. Unfilled orders for manufactured durable goods increased 0.9% to $1,223.0 billion. Inventories of manufactured durable goods increased 0.9% to $450.5 billion. Total durable-goods orders are up 2.3% from a year ago. 

The Conference Board’s Consumer Confidence Index was relatively unchanged in July, after gains in each of the last 5 months. The Present Situation Index, which is based on consumers’ sentiment of current business conditions and the labor market, improved to 160.3, up from 159.6 in June. The proportion of consumers planning to purchase homes, automobiles, and major appliances all rose. The Expectations Index, which measures consumers’ short-term outlook for income, business, and the job market was unchanged at 108.4 compared to last month where it was at 108.5. The share of consumers that indicated jobs were plentiful increased to 54.9%, up slightly from June’s 54.7%. The share of consumers who said jobs were hard to get was unchanged at 10.5%. The percentage of consumers who said business conditions are “good” increased to 26.4%, up from 25.2% last month.

The Bureau of Economic Analysis’ advance estimate on second quarter gross domestic product (GDP) growth reported an economy expanding at an annual rate of 6.5%, up from 6.3 % in the 1st quarter. Increases in personal consumption expenditures (PCE), nonresidential fixed investment, exports, and state and local government spending were partially offset by decreases in private inventory investment, residential fixed investment, and federal government spending. PCE was driven by an upswing in services specifically by food services and accommodations and nondurable goods, specifically pharmaceutical products.

Thanks for reading Post Pandemic Economy and Recovery – Week in Review!

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Prakash Kolli is the founder of the Dividend Power site. He is a self-taught investor, analyst, and writer on dividend growth stocks and financial independence. His writings can be found on Seeking Alpha, InvestorPlace, Business Insider, Nasdaq, TalkMarkets, ValueWalk, The Money Show, Forbes, Yahoo Finance, and leading financial sites. In addition, he is part of the Portfolio Insight and Sure Dividend teams. He was recently in the top 1.0% and 100 (73 out of over 13,450) financial bloggers, as tracked by TipRanks (an independent analyst tracking site) for his articles on Seeking Alpha.

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