Travis N. from Honolulu, HI asks: Aloha Mitch, I’m emailing you today to ask about the economic rebound everyone seems to be expecting in 2021. When do you think it will arrive, what will it look like, how long will it last, etc.?
Mitch’s Response:
Aloha, Travis! Thanks for writing from warm Hawaii to cold Chicago. You’re asking the trillion-dollar question, as everyone wants to know when the economy might ‘normalize’ and release some of the pent-up demand that’s been building throughout the pandemic. Well, you may not have to wait very long for the economic resurgence to arrive – in fact, it may have started already.
Across the U.S., employment in package delivery, warehousing, residential construction, and other blue-collar categories has surged. In the categories just mentioned, employment now exceeds where it was before the pandemic. For residential construction, in particular, employment is up 1% from where it was in February 2020.1
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A big part of the economic story right now goes back to the “K-shaped” recovery, where some parts of the economy (housing, e-commerce, technology) have been humming, while others (hospitality, tourism, restaurants) suffer evermore with restrictions. To find the economic resurgence, it really depends where you’re looking.
For those areas of the economy that are working, like housing and residential construction, I think 2021 could see even more strength. The federal government is on the verge of another $2 trillion stimulus, and the Federal Reserve is committed to low interest rates. A big portion of spenders – specifically in the millennial generation – are working and becoming new homeowners at a record pace. Consumer spending is not likely to abate much in the new year, particularly as more vaccines are distributed and hospitalization and death numbers continue to decline.
I’ve seen other signs that the U.S. economy is firmly back into the upswing with room to run. Last week, the IHS Markit U.S. composite purchasing managers index jumped to 58.8 for February, marking the strongest reading in nearly six years. Any reading over 50 indicates expansion in services and manufacturing, so there’s clearly strong activity there.
The weak part of the “K” in the economic recovery will not have to wait too much longer to see its surge, in my view. As vaccination numbers pick up and the weather improves, economic activity should pick up in kind, and people are eager to get out and travel, spend, and resume in-person activity. Maybe we see real signs of life by mid-to late-summer. Meantime, consumer spending has had a strong start to the year, and is ready to continue rising throughout 2021, in my view.
The economic rebound may occur sooner than later,
and even as we experience new highs, we also have to be prepared for lows. There
are steps you can take to protect your investments and create a retirement
portfolio that meets your financial goals even in uncertain times. To help you
do this, I recommend reading our guide, 7 Secrets to Building the
Ultimate DIY Retirement Portfolio.3
If you have $500,000 or more to invest, get this
guide to learn our ideas on the step-by-step process to building and
maintaining a retirement portfolio that will potentially help you reach your
goals and enjoy a secure retirement.
Disclosure