August 2020 Economic Update – Warning

Just as fast as the U.S. economy entered recession when the Coronavirus hit us in March, it may have already reached a bottom, but no one is fully certain. Our economic recovery will be slow, as the lingering effects of COVID-19 severely limit growth. I expect a modest rebound by early 2021, but we will still be in a quasi-recession compared to January 2020.
As of the time of this writing, our current unemployment rate fell from about 15% this March, to about 11% this week. I personally expect a slower drift down for the unemployment rate later this year, to maybe 9.5% in the fourth quarter. The unemployment rate however, won’t reach Pre-Pandemic levels (3.6%) until about the end of 2023. This means allot of suffering for many unemployed and under-employed Americans. Expect retail sales of large ticket items and “discretionary spending – luxury purchases” to drastically drop off until 2022.

The adverse impact on low-income households is particularly acute, imperiling the significant progress made in reducing extreme poverty in the world since the 1990s. Some say the unemployment rate in households previously earning less than $30K per year is about 15% right now (down from about 20% in April). Amid economic data that has remained rather weak beginning this 3rd Quarter (housing starts for example), Federal Reserve officials have dimmed hopes of a speedy, V-shaped recovery and continue to work out new stimulus plans as we speak. Contrary to what most economists are reporting, I feel we are in for at least 5 full months of very difficult times ahead of us. The “net effect” of the pandemic is going to be “aggregate demand” to decline relative to aggregate supply. If you know anything about supply and demand, its easy to see products and services will drop in price and many businesses will shutter for good because of the pandemic.

Today the national debt has grown to an astonishing $25.5 Trillion. With substantially more Pandemic related spending certainly still to come. 2020 will be one of the most expensive years in U.S. history. As a percentage of gross domestic product (GDP), the coronavirus response has already increased government spending to its highest levels since World War II (the single most expensive event in U.S. history). The only upside I see to this is that if America paid off its debt, there would be no Treasury Bonds or Treasury Notes to generate interest for larger purchasers and for companies to store value with. This is one of the reasons why we have currently seen another “store of value” hit multi-year highs recently, namely Gold and Silver.

Commodities as of early August: Gold bullion is continuing (year over year) to increase in per ounce prices; today hitting a new all-time high of $1,933 per ounce. Silver bullion has remained a good investment over the past year, today it is very close to a 5-year high at almost $23 per ounce. After a fantastic drop in price last March to roughly $15/barrel, Crude oil has increased over the past 4 months to a 3-month high of over $42/barrel…still moderately down from pricing in January this year of about $55. Crude Oil price outlook mirrors the economic growth outlook, therefore there is little hope of achieving early 2020 prices until about 2022.