Key Takeaways
Labor Market Improvements Should Bolster Spending
Tech-Oriented Business Investment Not Fading
Investor Sentiment Toward Inflation Is Shifting
This past weekend, the GOAT (Greatest of All Time) of women’s gymnastics, Simone Biles, notched her seventh US Championship title. Between her never-before-seen tricks, balance, and poise, it would be unsurprising if she is able to become the first woman to win back-to-back Olympic all-around titles since 1968 and the first US woman in any sport to win five gold medals at a single games in Tokyo this summer. This ‘all-around’ strength has also been on display by the US economy, as it is arguably experiencing the GOAT of recoveries from last year’s recessionary decline. In fact, just this week, the National Retail Federation became the latest institution to boost their 2021 retail sales growth forecast. In honor of Simone Biles’ historic seventh win, below we outline seven accolades the economy has earned throughout its remarkable recovery ‘routine’ that portends continued strength.
Retail Sales Springing To New Heights | The control group of retail sales—a direct gauge for the consumer spending component of GDP—is up 29.1% on a year-over-year basis. This is the fastest year-over-year pace on record and more than 7x the average over the last 10 years. While extended unemployment benefits will be ending early in 25 states, the monthly Child and Dependent Care Credit payments, which impacts ~90% of US families with children, are set to begin mid-July. After elevated spending on renovations and travel, what may consumers spend on next? Back-to-school sales at department stores are set to spike 25% given that most students learned from home over the last year. Consumers continue to captain the surge in economic growth.
Initial Claims Parallel To 30-Year Average | Initial claims have remained below the 400k threshold for two consecutive weeks. But in addition to marking the lowest level of filings since the pandemic began, this week’s report of 376k claims is back in line with the 30-year average of 385k. Although roughly 9.3 million workers are still unemployed, this week’s JOLTS Job Openings report showed a record 9.3 million positions still open. If 6 million of those jobs (~500k/month) are filled over the next twelve months, that will lead to even more spending power for consumers to power this economy to new record highs.
Withholding Taxes Round-Off To Record High | Personal disposable income is up 10.5% since March 2020, which is not all too surprising given the aforementioned improvements in the labor market. As a result, withholding taxes, which are an effective real-time indicator for evaluating the trajectory of the economy given it is reported by the government on a daily basis, are now at a record high. This indicates one of two scenarios: either more individuals working or those that are working are bringing home bigger paychecks. In either case, it’s a win for US consumers, who already have an unprecedented ~$2 trillion in excess savings.
Execution Of Tech Spending Reflects CEO Confidence | After a year in which many companies suspended forward guidance and reduced capital expenditures, CEO Confidence has since surged to the highest level in nearly 40 years. With record levels of cash on balance sheets, companies have been investing heavily in technology, which has become a critical part of business operations regardless of industry. But what’s even more promising, is that more than 25% of companies are planning to increase tech investment in the months ahead—an astounding percentage given how much companies invested in tech over the last year.
Amplitude Of ISM Index Recovery Earns A Top Score | The ISM Manufacturing Index returned to pre-COVID levels in just four months, the fastest recovery during any recession since 1950 due in large part to new orders, which surged to 67.0 from the April 2020 low of 27.1. Elevated new orders and healthy backlogs are a harbinger of continued manufacturing strength moving forward. A noteworthy rebound was also experienced by the ISM Services Index that currently sits at the highest level on record.
Housing Prices Yet To Dismount | The National Home Price Index rose at the fastest year-over-year pace since 2005 (13.2% YoY). The steady rise in home prices has been broad based too, with 19 of the 20 tracked cities reporting homes’ appreciated in excess of 10% year-over-year. Home appreciation has been one contributor (in addition to the equity market rally) that has helped household net worth climb to a record $136.9 trillion. Historically, wealthier individuals tend to spend more readily.
Inflation Fears Balancing Out | The year-over-year pace of headline and core inflation reached the fastest pace since August 2008 and May 1992, respectively, but fear is no longer the prevailing sentiment as the surge is being viewed not only as transitory, but as a healthy sign of the economy’s recovery. Our view is that inflation pressures will peak in 3Q before subsiding by year end. What has also helped shift sentiment is the reassurance from policymakers and businesses that the supply chain disruptions are being addressed and that pricing pressures should dissipate soon.
All expressions of opinion reflect the judgment of Raymond James & Associates, Inc., and are subject to change. Information has been obtained from sources considered reliable, but we do not guarantee that the material presented is accurate or that it provides a complete description of the securities, markets or developments mentioned. There is no assurance any of the trends mentioned will continue or that any of the forecasts mentioned will occur. Economic and market conditions are subject to change. Investing involves risk including the possible loss of capital. International investing involves additional risks such as currency fluctuations, differing financial accounting standards, and possible political and economic instability. These risks are greater in emerging markets. Companies engaged in business related to a specific sector are subject to fierce competition and their products and services may be subject to rapid obsolescence. Past performance may not be indicative of future results.
Black MondayOn 19 October 1987, the stock markets experienced a dramatic plunge that prompted many firms to shut down their trading desks and turn off their phones to minimize internal losses. Raymond James refused to do the same. Our desks stayed open to help meet clients’ needs, resulting in our first and only unprofitable quarter since the firm went public in 1983. |
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Who was Raymond James?The Raymond in our name is actually from Edward Raymond, owner of a 15-employee mutual fund sales group, Raymond and Associates, along Florida’s west coast. He sold his company to Bob James on 15 July 1964, on condition that the surviving firm be called Raymond, James & Associates. Three days after the sale, Ed Raymond was involved in a near-fatal automobile accident and never joined the firm. Nonetheless, even after Raymond had passed away, Bob James insisted that his name remain on the door – ahead of James’ own. That was a promise he made to Ed Raymond three days before the accident, and Bob James was a man who kept his promises. |
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Bear Market of 1974The severe bear market of 1974 threatened the existence of Raymond James, which was bleeding capital by the day. Tom James, his father and other leaders took extreme measures to keep the firm afloat, slashing costs, foregoing paychecks and even attempting to sell the firm for just enough capital to protect client assets and retain as many associates as possible. The story could have ended very differently if not for a sharp upturn and continued rebound in the stock markets late in the year. |
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Taking Raymond James PublicWhen consideration was being given to taking Raymond James public, Tom James penned a letter to shareholders (largely employees at the time). ” … the public offering should be considered as a statement of our independence. While this is a psychological rather than an economic rationale, it is nonetheless very important. We have asserted for some time that we are not interested in becoming a small part of a very large corporation. That assertion results mainly from the inclinations of management rather than the economic benefits associated with either alternative. The public stock offering affords us the opportunity to enjoy a little bit of the best of both worlds. While shareholders will be given liquidity at fair market value, we will still have the ability to control our own destiny.” After 40+ years of Tom’s leadership, upon becoming CEO, Paul Reilly was often questioned about whether the company might ultimately surrender its cherished independence and be acquired by some larger entity. His response: “Not while I’m around.” It’s a theme that continues today. |
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