ARBOR OUTLOOK: A small but encouraging light of economic healing
"I admit it’s getting better (Better) ... A little better all the time (It can’t get no worse); Yes, I admit it’s getting better (Better) ... It’s getting better ... Since you’ve been mine.“ — from ”Getting Better,“ as performed by The Beatles
Social and economic history is fascinating. Here’s a fact for us to consider. During the year of the global influenza outbreak (1918), the Dow Jones Industrial Average actually rose by 10.5%.
A year later, in 1919, the Dow ascended, incredibly, by 30.5%. In fact, as Efraim Benmelech and Carola Frydman write in voxeu.org, " ...real gross national product actually grew in 1919, albeit by a modest 1%." And " ... most indicators of aggregate economic activity suffered modestly, and those that did decline more significantly right after the influenza outbreak, like industrial output, recovered within months." An economic downturn did indeed occur in 1921, but economists attribute this to Europe’s decline in industrial productivity following World War I. Today, within months of this past spring’s coronavirus outbreak, we are seeing a similar, although small, bounce back in commodity prices due to global demand.
Admittedly, our economy doesn’t resemble anything like the one that existed during 1918.
Government stimulus, which has been so instrumental in permitting us to persevere through this economic collapse, was not utilized in 1918. So the country’s economic recovery during the influenza outbreak is even more impressive, as it occurred naturally, without the assistance of Federal Reserve policy, small business loans and unemployment relief.
This virus, unfortunately, appears to have long legs, and we’re experiencing a serious rise in cases and deaths, particularly in states that had previously reported fewer infections.
Unemployment is still rampant, and many sectors of our economy have yet to rebound. And we are, of course, facing numerous social challenges, like how to safely return our students to schools. So a full economic recovery is in its earliest stages.
It’s been a difficult decade for commodities, and prices are way down from even a year ago. Still, the tentative rising global demand is a breath of fresh economic air. China’s manufacturing sector is buzzing again, so China is both ordering raw materials for their own production needs and shipping goods to other countries whose factories are again in production mode. Oil, copper and tin prices are rebounding, and even some agricultural prices are improved. And the S&P 500 has rallied from its low in March.
As a recent Wall Street Journal article noted, "As demand increases, the pandemic and early-year collapse in prices are roiling commodity supply chains, which some investors said could fuel further gains ... China is the world’s dominant commodity consumer, and the uptick in economic activity there and elsewhere signals that the world economy is in the initial stage of healing from the pandemic."
Obviously, markets have done better recently than the economy. An uptick in manufacturing due to global demand will help our domestic economic recovery in the industrial sector. And we’ll take any small sliver of financial sunshine available right now.
Margaret R. McDowell, ChFC, AIF, author of the syndicated economic column "Arbor Outlook," is the founder of Arbor Wealth Management, LLC, (850-608-6121 — www.arborwealth.net), a “fee-only” registered investment advisory firm located near Sandestin.