Is Economic Optimism Taking Over Main Street?

Arguably, there is nothing but optimism in the financial markets. The Fed is providing endless liquidity to seemingly any entity in need, the US stock market keeps hitting record high after record high, and there is nothing but escalating excitement around existing or up-and-coming financial market products such as designer ETFs, digital non-fungible tokens, and more. Indeed, it is quite the party on Wall Street.

Conversely, Main Street has been stuck in a quagmire. For example, many cities and states have lifted or have begun to lift the various restrictions that were forced on citizens and businesses, but other cities and states have not yet lifted restrictions. Additionally, some people have been doing everything they can to get back to some sort of pre-coronavirus normalcy, and they are doing this by engaging in activities such as dining out, going to church, playing sports, attending community events, and more, while other people have been waiting for some other event to take place first before living a more publicly active life, such as getting vaccinated, being able to freely travel from location to location, or the official declaration of the end of the pandemic.

As we move through early April 2021, however, it seems like the quagmire is giving way to sunny skies and a smooth path forward. That is to say, there is a lot of economic optimism on Main Street right now, and this optimism has been steadily building over the past week. But just as there are valid reasons to be optimistic about the economy, there are also valid reasons to be cautious or even pessimistic. Therefore, let’s assess a few hot topics in the economy to get an understanding of how different types of people are interpreting them.

RETAIL (AUTO) SALES

Auto manufacturers have been selling a lot of cars and trucks in 2021, and auto sales were off the charts in March! The optimists look to the Federal government’s fiscal spending, such as the Economic Impact Payments, as economically stimulative. People do, after all, have unlimited wants, and when several thousands of dollars hit peoples’ bank accounts a few times over the course of one year, it is to be expected that many wants turn into robust demand for durable goods including cars & trucks. The cautious person says, “yes, but there was a bunch of pent-up demand already”, and the pessimist argues the statistics are skewed and unreliable because of the major effects that the lockdowns and the shutdowns, which began over one year ago, had on the economy. Here’s some food for thought, however: According to this article from Car and Driver, “Honda saw its best month ever in March”. This is significant, in my opinion, because Honda has been selling cars in the United States since 1969, which was years before Nixon closed the gold window. That said, are these surging vehicle sales the early leading indicators of the crack-up boom?

EMPLOYMENT/JOBS SITUATION

In general, people are bullish on job growth in the United States. The New York Times says, “job gains were spread across industries” in regards to the nearly 1,000,000 jobs that were reported to have been created in March. The optimists out there say the economy is roaring back with job creation just at a time when the Federal government is getting around to its massive infrastructure programs, which the optimist see as a good thing for growth going forward. The cautious person agrees there is job growth, only that much of the growth has to do with making up the jobs that were lost as a result of the pandemic. That is to say, the US economy isn’t really adding new jobs, but rather, employers are replacing the jobs that were lost. The pessimist says the government’s jobs reports are statistically inaccurate at best, or disingenuous at worst, and therefore, they cannot be used as reliable points of data. Regardless, what happens if there is a resurgence of the coronavirus?

DISCRETIONARY INCOME/LEISURE

The Texas Rangers recently held their home opener against the Toronto Blue Jays, and the baseball game was pretty much sold out. The Hill reports over 38,000 fans in attendance, and no matter one’s opinions on the lockdowns, the shutdowns, the mask mandates, the social distancing, and all of the things that dominated the year 2020, it is pretty clear that people want to get out and enjoy fun activities once again. The optimist argues if we end the restrictions, places will spring to life, pun and no pun intended, whereas the cautions person is assessing whether this increase in economic activity is a one-time bump due to pent-up demand, and the pessimist is saying economic activity may be picking up now, but, among other direct and indirect risks, corporations taking stances on political issues by virtue signaling, calling for boycotts, “canceling” people and more could turn certain aspects of the recovery into a bust before businesses could even get to the booming part.

CLEAR SKIES AS FAR AS THE EYE CAN SEE?

There is no denying economic activity is picking up. We are not in the clear just yet, however. Remember, the Federal government in general and various Federal Departments and Agencies specifically are, for better or for worse, micro-managing much of America’s economic activity on a very granular level. For example, the CDC just extended its nationwide Eviction Moratorium from the first of April through the end of June. What happens at the end of June when the Moratorium is lifted, or will it be extended once again? Wouldn’t another round of Economic Impact Payments be needed by that time, and what if there is not another round of that direct aid to eligible taxpayers and their dependents?

The Eviction Moratorium is just one example, and there are others. For example, what happens when the extended unemployment benefits run out, or what happens when the USDA is no longer providing 10 free meals per week to all students who need or want them? In a weird way, it’s like we’re all in a race against time, a race in which, whether we want them to or not, and whether we like it or not, the training wheels are coming off of this bicycle. Some people will fall down a few times and give up, other people will fall down a few times and keep going, and some people won’t even fall down once, but that’s just life in all of its unpredictable, random unfair glory. In my opinion, if we truly want to get this economy moving forward, not only should the training wheels come off sooner rather than later, but those who want to should be able to add an engine to move faster down the road or add some lights to see better or add a basket to the handlebars to have options, but no matter what, if we don’t take the training wheels off, we simply can’t grow, and we’ll never know the greatness we could have been.

Click below to run through this week's charts over my shoulder:

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Paul Eberhart
Paul Eberhart
Senior Market Analyst and Columnist

Paul Eberhart has been actively trading and writing about precious metals for more than a decade. A U.S. Army Iraq War Combat Veteran, he holds an AS in Information Systems and Security from Western Technical College and a BA in Spanish from The University of North Carolina at Chapel Hill.