MENU

Perspectives

Another Reason to be Optimistic Following Yesterday's GDP Report

by Fortem Financial October 30, 2020

With all the uncertainty going on in the world, we have found more stability in looking at the reported economic data. One of the data points that we believe is crucial is personal income. We have shared many times over the years that the US economy is a consumer led economy; roughly 70% is driven by consumption. The most recent report of personal income shows that it increased 0.9% in September (+1.6% including revisions to prior months), which beat consensus expectations (again). Consensus expectations were looking for an increase of 0.4%. More importantly than September's data, over the last year personal income is up 6.2%.

Personal income is so important because it is a leading indicator of consumption; if income falls, we normally see a drop in consumption. We also like to track consumer confidence because in order for increasing incomes to create economic growth, we also need to see increased consumption. Generally, we expect to see higher consumption when consumer confidence is high. However, this year has been an anomaly in that consumer confidence (while up 18% off its bottom) is still down 24% from its pre-Covid levels, but personal consumption is up. The chart below shows personal consumption expenditures over the last two years, and though we saw a precipitous drop in consumption in March and April, it has since rebounded. We attribute some of the delinking between consumer confidence and spending to the Fed's monetary policy. Interest rates have gotten so low that we are seeing a lot of real estate purchases.


Source: FactSet

Unlike the real estate purchases leading up to the Financial Crisis of 2008, these purchases are being fully underwritten. Borrowers are having to pass stringent credit and income requirements, and they are most often taking out long-term fixed-rate mortgages. This behavior may well be a base for continuing economic growth as housing costs are locked in at relatively low levels due to the low interest rates. As wages rise and housing costs remain relatively low, consumers will be able to direct future wage increases to savings, investments, and the consumption of other goods and services.

Perhaps more importantly than the rise in personal income is the source of the increase. Private sector wages and salaries increased 1% in September and are up over 10% from where they bottomed out in April 2020. Although wages are not yet back to their pre-Covid highs (they down 3% from February's highs), they are continuing to make steady progress forward. Equally, and perhaps more importantly, personal income continued to increase even though government payments continued to fall in September.

We also want to highlight that the recovery in spending is broadly based. In September:

  • Spending on autos increased by 6%
  • Spending on clothing and footwear increased by 7.3%
  • Spending on movie theaters was up 137%
  • Spending on railway transportation was up 36%
  • Spending on rental cars was up 12%
  • Home sales are up 22% from a year ago

The big question is, can this continue? We believe the answer is yes because there is still "dry powder" available; the savings rate continues to be elevated, and in September measured in at over 14%. When we couple the current savings rate and the growth in personal incomes, we see evidence that the current economic recovery can keep pushing forward.

Because the re-opening of the economy will depend significantly on what is happening with Covid-19, we are also tracking the Covid-19 data. Covidtracking.com reported (as of 10/28/20) that although there has been a dramatic climb in the number of new Covid-19 infections, the death rate has not increased as dramatically.

While it is impossible to know all the reasons why the death rate has held far steadier than the rate of infection, we can think of a number of plausible explanations:

  • Now that we know more about the virus, those who are at the most risk are likely doing a much better job of quarantining themselves from the virus.
  • The medical community has worked tirelessly on treatment options, and they have learned a great deal in a short period of time about the best ways to treat Covid patients, and they are delivering better outcomes.
  • Because we are doing much more testing now, we may simply be more accurately aware of how many cases of Covid there actually are. We have heard numerous scientists and doctors report there may be as many as 10x the number of Covid cases that we know about. The more broadly testing is done, the more actual cases of Covid will be accurately reflected in the number of positive tests.

Taking data from CovidTracking.com again, we see that despite the steady rise in daily cases of Covid-19, the demand for hospital beds from April through October 29, 2020, has been relatively steady, and has in fact decreased from the levels seen in April and July.

And though the US is nearing "traditional" hospital bed capacity in various areas, throughout the pandemic, we have seen evidence that the US has significant resources to open "surge" centers throughout the country to help handle the additional needs. In March, NY Governor Cuomo issued an order to increase hospital bed capacity and plans were laid out to add over 16,000 hospital beds.1 In April, CA Governor Newsom ordered CA to use its surge capacity to create an additional 50,000 hospital beds (a 67% increase).2 The Texas Medical System in Houston reported that if they hit capacity, they had resources to add an additional 66% through surge capacity.3 Governor Ducey in AZ reported that his state had ample surge capacity to meet the projected demand. 3

Further, we have seen a willingness of states with excess resources to lend support to those who need it. We have also seen military medical support as needed to offer staffing to run the surge capacity beds in various parts of the country. With CA and NY being among the hardest hit when the pandemic first started, we saw military hospital ships dispatched to offer support. Fortunately, much of the surge capacity and support has not been required, but we believe it is important to recognize that many of the current headlines are focusing on the current traditional hospital capacity, reacting as if that were the end of the line. Thankfully, the accurate (and under-reported) story is that when we have seen various medical systems reaching capacity, we have seen quick responses to provide surge capacity so that medical services can be provided as needed.

So while we cannot know with certainty "why" the death rate has held so steady and "why" the demand for hospital beds has not surged like the number of new cases, there are some things we do know.

We do know that given the number of patients in the hospital with Covid-19 currently (46,095 nationally), there is dramatically more capacity than what is now required. Again, CA alone issued a plan to add 50,000 new hospital beds, NY's initial plan was to lay out an additional 16,000 + hospital beds. Texas, AZ, FL, and many other states all issued plans to dramatically increase their available hospital beds. If the total number of in-patients nationally were to double, California's anticipated increase in surge beds alone would be enough to handle the capacity.

We understand it is not practical to move thousands of patients to CA, we are simply stating that there is a significant amount of evidence that the US has the broad ability to add surge beds where needed to help care for the sick, should the need arise.

Looking at the data, we believe there is strong evidence that we are unlikely to return to the level of lockdowns seen in March and April. We are equally convinced we are likely to see smaller regional responses to flatten out the number of new Covid cases in areas where they are not able to flatten the curve any other way. But because we expect these measures to be focused, we do not expect dramatic reductions in the country's economic activity like what was seen in March and April.

Please call us with any questions.

Sincerely,

Fortem Financial
(760) 206-8500
team@fortemfin.com

 

Brian Amidei, along with Partners Joseph Romano and Brett D'Orlando have also been named *2014, 2015, 2016, 2017, 2018 Five Star Wealth Managers!

Disclosures:
Awards and recognitions by unaffiliated rating services, companies, and/or publications should not be construed by a client or prospective client as a guarantee that he/she will experience a certain level of results if Fortem is engaged, or continues to be engaged, to provide investment advisory services; nor should they be construed as a current or past endorsement of Fortem or its representatives by any of its clients. Rankings published by magazines and others are generally based on information prepared and/or submitted by the recognized advisor. Awards may not be indicative of one client’s experience or of the Firm’s future performance. Neither Fortem nor the recognized advisor has paid a fee for inclusion on a list, nor purchased any additional material from the award provider. The criteria for each award is listed below:

Five Star Professional Disclosure:
The Five Star Wealth Manager award is based on 10 eligibility and evaluation criteria: 1) Credentialed as an investment advisory representative (IAR) or a registered investment advisor; 2) Actively employed as a credentialed professional in the financial services industry for a minimum of five years; 3) Favorable regulatory and complaint history review; 4) Fulfilled their firm review based on internal firm standards; 5) Accepting new clients; 6) One-year client retention rate; 7) Five-year client retention rate; 8) Non-institutionalized discretionary and/or non-discretionary client assets administered; 9) Number of client households served; and 10) Educational and professional designations. The inclusion of a wealth manager on the Five Star Wealth Manager list should not be construed as an endorsement of the wealth manager by Five Star Professional or the magazine. The award methodology does not evaluate the quality of services provided. Additional information about this award is available at: fivestarprofessional.com/2016FiveStarWealthManagerMethodology.pdf
Fortem Financial 2016. All rights reserved.

Data Sources: News items are based on reports from multiple commonly available international news sources (i.e. wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. Market Data: Based on reported data in WSJ Market Data Center (indexes); U.S. Treasury (Treasury Yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness.

Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. The opinions expressed are solely those of the author, and do not represent those of Fortem Financial, LLC or any of its affiliates. Past performance is no guarantee of future results. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful. Forward looking statements are based on current expectations and assumptions, the economy, and future conditions. As such, forward-looking statements are subject to inherent uncertainty, risks, and changes in circumstance that are difficult to predict. Actual results may differ materially from the anticipated outcomes. Carefully consider investment objectives, risk factors and charges and expenses before investing. Fortem Financial is a registered investment adviser with the SEC. Advisory services are offered through Fortem Financial.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighed index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indices listed are unmanaged and are not available for direct investment.

Fortem Financial

Fortem Financial Author

Recent Posts

PRIVACY NOTICE REGARDING CLIENT PRIVACY

Fortem Financial Group, LLC, has adopted this policy with recognition that protecting the privacy and security of the non-public personal information we obtain about our customers is an important responsibility.

All financial companies choose how they share your non-public personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your non-public personal information. Even when you are no longer our customer, we will only share your non-public personal information as described in this notice. So, please read this notice carefully to understand what we do.

The types of non-public personal information we collect and share depend on the product or service you have with us. This information can include items such as your Social Security number and income, your account balances and transaction history, and your investment experience and account transactions.

We collect your non-public personal information in a variety of ways. For example, we obtain your non-public personal information when you open an account or give us your income information, tell us about your portfolio or deposit money, or enter into an investment advisory contract. We also collect your non-public personal information from other companies. For example, from the custodians who hold your account assets.

All financial companies need to share customer’s non-public personal information to run their everyday business. Below, we describe the reasons we can share your non-public personal information and whether you can limit this sharing.

We share your non-public personal information for our everyday business purposes such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, report to credit bureaus, to protect the confidentiality or security of your records, or as permitted by law. We may also share your non-public personal information for our own firm’s marketing purposes; so that we can offer our products and services to you.

Federal law gives you the right to limit only sharing non-public personal information about your credit worthiness for our affiliates’ everyday business purposes; sharing non-public personal information about you with our affiliates to market to you; and sharing non-public personal information with non-affiliates to market to you.

We don’t share non-public personal information about your creditworthiness with our affiliates for their everyday business purposes. We don’t share your non-public personal information with our affiliates to market to you. We don’t share your non-public personal information with non-affiliates to market to you. We also don’t share your non-public personal information for joint marketing with other financial companies. State laws and individual companies may give you additional rights to limit sharing.

We share non-public personal information with our parent company affiliate, Focus Financial Partners, Inc, for its internal and external auditing purposes. We also share your non-public personal information with a non-affiliate for the purpose of aggregating it and providing summary information based on this data to our parent company, Focus Financial Partners, Inc.

To protect your non-public personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include computer safeguards and secured files and buildings.

Our policy about obtaining and disclosing non-public personal information may change from time to time. We will provide you notice of any material change to this policy before we implement the change.

If you have questions please call us at 760-206-8500 or go to our website at www.fortemfin.com.

IMPORTANT CONSUMER DISCLOSURE

Fortem Financial Group, LLC ("Fortem Financial" or the "Firm") is a federally registered investment adviser with offices in California and Arizona. Fortem Financial and its representatives are in compliance with the current registration and notice filing requirements imposed upon federally registered investment advisers by those states in which Fortem Financial maintains clients. Fortem Financial may only transact business in those states in which it is notice filed, or qualifies for an exemption or exclusion from notice filing requirements.

This website is limited to the dissemination of general information regarding the Firm's investment advisory services offered to U.S. residents residing in states where providing such information is not prohibited by applicable law. Accordingly, the publication of Fortem Financial' website on the Internet should not be construed by any consumer and/or prospective client as a solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment, tax or legal advice. Furthermore, the information resulting from the use of any tools or other information on this website should not be construed, in any manner whatsoever, as the receipt of, or a substitute for, personalized individual advice from Fortem Financial. Any subsequent direct communication from Fortem Financial with a prospective client will be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. Fortem Financial does not make any representations as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to this website or incorporated herein, and takes no responsibility therefore. All such information is provided for convenience purposes only and all users thereof should be guided accordingly.

All statements and opinions included on this website are subject to change as economic and market conditions dictate, and do not necessarily represent the views of Fortem Financial or any of their respective affiliates. Past performance may not be indicative of future results and there can be no assurance that any views, outlooks, projections or forward-looking statements will come to pass. Investing involves risk, including the potential loss of principal, and the profitability of any particular investment strategy or product cannot be guaranteed.

Any rating referenced herein may not be representative of any one client's experience. Further, the Firm's receipt of any rating is not indicative of the Firm's future performance. The Charles E. Merrill Circle of Excellence award is granted by Merrill Lynch for outstanding client service and satisfaction. The award is granted based on annual criteria established by Merrill Lynch for its top decile advisors. The Barron's Top 1,200 Financial Advisors rating of the top financial advisors in the United States is based on data provided by participating firms. The following factors are included in the rankings: assets under management, revenue produced for the firm, regulatory record, quality of practice and philanthropic work. Investment performance is not an explicit component. The Palm Springs Life's "40 Under 40" Rising Young Professionals to Watch in the Coachella Valley is based upon nominations from the local business community and selected by the staff of Palm Springs Life.

For information pertaining to the registration status of Fortem Financial, please refer to the Investment Adviser Public Disclosure website, operated by the U.S. Securities and Exchange Commission, at www.adviserinfo.sec.gov., which contains the most recent versions of the Firm's Form ADV disclosure documents.

ACCESS TO THIS WEBSITE IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND WITHOUT ANY WARRANTIES, EXPRESSED OR IMPLIED, REGARDING THE ACCURACY, COMPLETENESS, TIMELINESS, OR RESULTS OBTAINED FROM ANY INFORMATION POSTED ON THIS WEBSITE OR ANY THIRD PARTY WEBSITE REFERENCED HEREIN.