Technically, the economy is still in a recession. The National Bureau of Economic Research (NBER), the arbiter of recessions and economic recoveries, has yet to declare that the recession is over. When it does, it will likely backdate the end of the recession, as it has done in the past. Remember 2008. It took the NBER over a year to tell us that the recession really started in October 2007.

Regardless of when the NBER makes its declaration, this economic recovery has been far from what might be considered a normal recovery. The pandemic that led to the steepest slide in quarterly GDP on record (U.S. BEA, quarterly records began in 1947) has also shaped one of the most lopsided recoveries we’ve ever experienced.

Look no further than service-based industries that require the personal interactions to thrive, which is something we took for granted pre-Covid.

Social distancing restrictions and fear of contracting the virus have severely impacted airlines, hotels, travel, restaurants, concerts, and movie theaters. Obviously, these industries and more have struggled to adapt to the new normalcy. Some will never recover.

Even health care has suffered. According to data from the U.S. BEA, spending on health care is down 12% versus one year ago (Q4 2021 vs Q4 2020). Health care spending accounted for over 10% of GDP in the final three months of last year.

But other industries have adapted. For example, real estate and home building relies heavily on the personal touch. But record low interest rates have spurred strong demand for housing.

Essential retailers, home improvement, auto sales, and grocery stores have experienced robust numbers. Consequently, manufacturers were caught off guard by the resurgence in sales.

A February 22 story in the Wall Street Journal sums it up well: Consumer Demand Snaps Back, Factories Can’t Keep Up. Snarled supply chains, labor shortage thwart full reopening; “Everyone was caught flat-footed.”

Can you guess what happens when demand outstrips supply? Inflation. And what the mere fear of inflation brings on? Higher interest rates. Many people mistakenly think that the FED controls interest rates. That is only true for the very short term rates (like money markets). I have long said that the bond market is in charge. Last week, the bond market started bidding up long term interest rates. It is important to remember that as interest rates go up, bond prices come down. This phenomenon also put the brakes on the stock market rally.

Reopening various sectors of the economy has helped fuel recovery. Generous jobless benefits and two rounds of stimulus checks have left many with ample cash to spend. While the final touches aren’t yet on the latest relief package, more cash than we have ever seen in one package is likely to be on its way to the vast majority of people.

But here lies the problem. Government restrictions prevent most of us from attending sporting events, museums, and the theater. I think I speak for many who are not fully comfortable traveling on airplanes, spending a night in a hotel, or enjoying a meal at a restaurant. It will likely take a few months for a lot of people to get comfortable with these things again.

The extra government support that has helped fuel growth has been funneled into some industries or into savings, which I recognize are needed, but it has severely hampered others.

You might consider your own circumstances. Have you noticed smaller balances on your monthly credit card statements? Have you noticed a different mix in your outlays versus pre-pandemic? Are you streaming more movies rather than going out to dinner or enjoying the theater? Has your choice of recreation been altered or completely eliminated?

A new and bigger relief package, currently pegged at $1.9 trillion seems likely to get out of Congress and onto the president’s desk very shortly. Expect the new cash to support the economy and to continue to support various sectors that have benefitted at the expense of other sectors. We are looking closely at cyclical stocks right now.

What might help the beleaguered industries that have suffered under today’s restrictions? (First quarter 2021 is likely to show significant year-over-year results but future quarters are still in question.) Only one thing we can likely truly count on: more volatility in both GDP and the markets.

Here are six factors identified by economist Dr. Woody Brock that will lead to continued growth in the economy:

• The vaccine rollout goes smoothly.
• There are no new strains of the virus that cannot be immunized against.
• Significant new fiscal stimulus is provided soon.
• At least a 70% success of Biden’s $1.9 million package.
• Public confidence in the future is restored.
• Huge pent-up demand translates into catch-up spending.

If all these things come to pass, significant economic growth will likely occur from April into 2022. Then guess what happens to the reporting for 2022? The numbers may once again turn negative. The notion of long run averages will be stood on its head.

Cautiously, Dr. Brock warns that if only half those conditions come to pass, growth will stagnate at around 1.5%. If none are met, we are probably in for a long-lived recession. We will know which it is long before the NBER tells us so. Stay tuned.

Updated March 9, 2021