Thankful, But Watchful
Post from First Trust Economics Blog
Brian S. Wesbury – Chief Economist
Robert Stein, CFA – Deputy Chief Economist
Nov. 22nd 2021
As Americans gather among family and friends to
celebrate Thanksgiving, we all have much to be thankful
for.
Twenty-one months after COVID-19 led to massive
lockdowns across the US, vaccines are now widely
available thanks to the private enterprise system. In
addition, new highly effective treatments are coming to
market, which could minimize the risks associated with
COVID-19 for both the highly-vulnerable as well as
those who’d prefer not to take the vaccine.
Meanwhile, entrepreneurs and businesses of all
sizes had to squeeze about a decade’s worth of
innovation into a year to overcome both COVID itself as
well as draconian measures taken to (supposedly) limit
the spread of the disease. So much so that the number of
workers on payrolls is still down 4.2 million versus
February 2020 (the last month pre-COVID). But this
reflects worker decisions, more than worker demand.
Total employment plus total job openings are just 1.3
million below pre-COVID levels.
Meanwhile 232 years after the Constitution was
ratified we continue to enjoy the blessings of the
American Founders’ wisdom. The separation of powers
means no president is a dictator, neither the ones you
vote for or against, even in the face of a health threat that
many still perceive as severe. Witness the recent
suspension of extremely burdensome OSHA rules that
would have required private companies to impose
vaccine mandates on their workers or, in the alternative,
authoritarian-style mask and testing requirements, even
as every adult who wants a vaccine can get one and
young people face very little risk.
Then there’s the federal system of overlapping
jurisdiction between the federal government and the
states that allows for some variety in public policy, in
part responsible for the movement of people between the
states toward places where people are more free, both in
general, as well as with respect to COVID.
But all of the things we should be thankful for don’t
add up to a reason to be complacent. Inflation is
obviously a bigger problem than it’s been in decades and
no one should be confident that they know exactly the
course of treatment the Federal Reserve will ultimately
apply. Near the end of next year, we will all have a
clearer picture of how persistent and high inflation really
is, and whether tapering does anything to bring it down.
Our belief is that inflation is not temporary. The
only question is whether the Fed chooses to bring policy
back to normal quickly or slowly. We expect the Fed to
kick the inflation can down the road for some period of
time. Whether that is just until 2023, or until a new
administration in 2025, is still debatable. Either way, the
US will end up with a period of slower growth at some
point in the years ahead.
So for now, be thankful. We remain bullish on
equities and the economy. A bear market or recession in
2022 is very unlikely. But don’t be complacent. Be
watchful and be ready to shift, as always, if
circumstances change.