Now that full-year GDP numbers are out I can finish the 2020 year-in-review series by taking a look at major economic indicators. Needless to say last year’s economic datapoints will be massive outliers on long-term charts for years and decades to come.
The employment situation changed drastically from 2019 and remains dire (Exhibit 1). The U.S. economy lost 9.4 million jobs for the year. The unemployment rate ended the year at very high level of 6.7%. Likewise, U-6 rate jumped to 11.7% – it’s a broader measure defined as “Total unemployed, plus all marginally attached workers plus total employed part time for economic reasons”.
Sadly, these December numbers don’t capture the full carnage that occurred in the labor market. Exhibit 2 shows monthly detail. If March was a bad month with 1.4 million jobs lost, then April was unimaginably awful with 20.8 million people losing their livelihood! In two months we lost over 22 million jobs or full 15% of all payrolls and the unemployment rate peaked at 14.8%. For reference, in a “normal” recession unemployment rates peak at 7-8% and the bad ones like 2008 and 1982 peaked at around 10%, so 15% is not normal by any stretch. Since April, we have been slowly rebuilding the economy and regaining jobs at varying speed depending on the ebbs and flows of the pandemic.
Exhibit 1 – Employment
Exhibit 2 – 2020 Employment Stats by Month
U.S. GDP declined 3.5% for the year, which was the worst performance for the economy since 1946 (Exhibit 3). Inflation as measured by CPI actually increased by 1.4%, still hovering around the 2% Fed target. Notably wage growth was very strong at 5.1%. 2020 was a story of bifurcation in the labor markets – millions of low-wage workers lost their jobs while white collar occupations fared fine thus driving the average wage numbers up. U.S. dollar first spiked in March during the market selloff but then drifted lower the rest of the year depreciating 5.5% in 2020.
Exhibit 3 – Growth & Inflation
Now on to another huge mess – Federal finances. Driven by multiple stimulus bills, public debt spiked 20% to $28 trillion (Exhibit 4). As a percent of GDP we are almost at 130%, which puts us in the top 5 worldwide with such fiscal paragons as Greece and Italy. Budget deficit for fiscal 2020 more than tripled to $3.1 trillion or 15% of GDP. On the monetary policy side of government support, Federal Reserve’s balance sheet expanded by 80% to $6.7 trillion as they provided backstop to everything from new Treasure issuance to junk bond ETFs.
All of these emergency measured were absolutely necessary and helped avert a complete economic meltdown. However, these numbers are getting into very uncomfortable territory and will need to be addressed soon. I think this area deserves a much more detailed analysis so I plan on doing an extended post on it soon.
Exhibit 3 – Debt & Deficit
So given this economic calamity, what happened to the stock market? S&P 500 earnings dropped by 23% (Exhibit 5). However, P/E multiple, increased from 20.6x to 31.0x. So the market’s 16% gain (excl. dividends) came entirely from multiple expansion as investors chose to look through bad 2020 numbers to earnings recovery in 2021/22.
As the Fed cut short-term rates to zero, 10-Year Treasury rate was cut in half to 93 basis points. The average rate throughout the year was even lower and it bottomed at 0.52% in early August. 30-Year Mortgage rates declined by 1.07% greatly boosting refinancing volumes.
Exhibit 5 – Earnings & Rates
Finally, the housing sector was one of the very few bright spots in 2020 (Exhibit 6). Units sales saw strong increases, particularly on the new home sales side with 19% jump. The inventory of existing homes plunged 23% and reached an all-time low of 1.9 months’ supply (normal is around 6 months’). Low mortgage rates, strong sales and low inventory led to big price increases of 5% to 10% depending on the metric you choose.
U.S. auto sales dropped 15% to 14.8 million a year. Electrification of cars continued apace with GM announcing it will stop making gasoline-powered vehicles by 2035. Tesla stocks had another ludicrous year rising 743% in 2020, while its sales rose only 28% and vehicle deliveries were up 36% to just under 500,000 (GM sold 6.3 million cars).
Exhibit 6 – Housing & Autos