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Breaking news: The US economy is roaring! Over the last few months, we have witnessed the sharpest economic snapback in US history. While many are still out of work, the future looks increasingly promising for those seeking employment. One would think that we were still mired in the deepest throes of April’s COVID-19 crisis if you take heed of the media’s narrative in recent weeks. It is clear the Democrats and Joe Biden are making the pandemic their closing argument for the 2020 election. But why? The economy is a losing argument for the Left.
As of early this October, a majority of voters believe that Trump is best equipped to handle the economy. If the Gallup poll showing 56% of voters believing that they are better off today than they were four years ago is accurate, the Biden campaign is in big trouble. With the political circus dictating the daily narrative, it’s easy to lose track of just how much progress has been made on the economic revival since 2016, and more specifically, since this past spring’s pandemic-induced lows. When assessing the strength of the economy, it’s very useful to look at some of the raw data that gives insight into the global supply and demand dynamic.
The commodity market is a clear window into the cost of goods and the level of demand that exists. As the Coronavirus shut down economies all over the world, global goods demand collapsed. Most notably was the oil market, as energy fuels the economy as a whole. Supply was steady, but a massive collapse in activity that forms demand left producers with a supply glut. The supply/demand gap was so large that oil futures (commodities trade primarily in the futures market) actually went negative, a historic event.
Just 7 months later the market has not only stabilized, but also has rebounded significantly. Oil, itself, is up over 100% from levels seen this Spring. This is a sound indicator of the resumption of robust economic activity. We are now escaping from economic contraction and are closing in on expansion. As consumers travel more and demand comes back for finished goods, the oil market will continue to flourish. This is one of many reasons why the Third Quarter GDP measure, to be released at the end of October only days before the election, will show the most significant rise in US history. The commodities market isn’t limited to oil. There are other very useful economic gauges within the basic goods market.
One of the most important, in terms of assessing global activity, is copper. Copper is a basic material used throughout manufacturing. The copper market collapsed this Spring along with all other raw goods during the crisis. At its low, copper was trading down roughly 35%. As activity has roared back to life, copper has been on an absolute tear. As of this writing, copper is up over 50% above its COVID lows, and is, in fact, higher than the market was trading pre-COVID. That’s a very promising signal emanating from the commodity market.
Here in the United States, we have many indicators painting a picture of a resurgent economy that may already be in a boom despite a high unemployment rate. We have very good cause to remain optimistic. Most recently, the PMI services index, a measure of economic activity in the services sector(and ~70% of the US economy), registered at ~56. A PMI reading 50 represents flat activity, while any figure above 50 indicates growth. 56 is a reassuring figure and represents a substantial increase in the level of activity in a significant portion of our economy.
If there is one metric that reigns supreme over all other data points, it’s the level of employment. On this front, we have seen a surprising rate of recovery. Many suggested this past spring we wouldn’t see a recovery in employment for years and years. Some even suggested we were at the beginning of a decade-long depression. This couldn’t be further from the truth. At the nadir of the Coronavirus recession, the unemployment rate in the United States was a staggering 14.7%. The Payroll Protection Plan (PPP) undoubtedly saved the US labor market from total collapse. Now, unemployment has contracted to 7.9%. This is a remarkable rebound, considering the shape we were in just 6 months ago. This growth is the highest on record for the United States.
Across metrics and hard data, it’s clear the economy is surging its way back to prosperity. It was during Obama’s administration that our leaders suggested we were in a “new normal” in which unemployment was steady at 5% and that we would see sub-3% growth indefinitely. The Trump economy blew that assumption up, capped with the most prosperous year on record in 2019. It is on the strength of that growth that we have been able to power our way through a total economic shutdown.
Despite this gratifying recovery, it remains fragile. A Biden-Harris administration would usher in regulatory and tax policies that would cripple the economy‘s growth and send us backward in ways we can’t imagine. Having come so far in the face of a devastating pandemic, it would be tragic to snatch defeat from the jaws of victory. Should such a political reversal of fortune transpire, those dire predictions of a long depression just may come true.