Recovery Coming

COVID-19 Vaccine May Bolster Businesses’ Confidence in Bourgeoning Economic Recovery, Incentivize Investment


With the onset of the new year, there are a multitude of signals suggesting cause for optimism moving forward. Recovery in the US Industrial Production quarterly data has already begun, and our dashboard of leading indicators suggests that the annual production trend will transition to Phase A, recovery, in the coming months.

Though several European countries have reinstated shutdown orders (to varying degrees) in response to rising COVID-19 case numbers, US governors are generally prioritizing keeping state economies open; at the time of this writing, four states have significant business closures. The COVID-19 vaccine may bolster US businesses’ confidence in the bourgeoning economic recovery and incentivize investment in the new year. We also expect a more inflationary environment in 2021 as recovering industrial activity yields higher demand for inputs.

Further cause for optimism stems from US Nondefense Capital Goods New Orders (excluding aircraft); quarterly New Orders are already up 12.7% compared to the same time period in 2019. We expect business to-business spending to generally rise through at least 2021. Within the business-to-business sector, US Computers and Electronics New Orders and US Nondefense Communications Equipment New Orders are driving recent positivity as employees and firms invest in equipment to facilitate remote work and investment related to the 5G rollout occurs. In contrast, the US Machinery New Orders segment of the B2B world is recovering more sluggishly, with quarterly New Orders virtually flat with the same period one year ago. Those tied to this sector may still experience some weakness early in the year, but it is expected to strengthen as 2021 progresses.

The strength of the consumer is already readily apparent in the singlefamily housing market. US New Homes Sold during the three months through November were up 31.7% from the same period one year ago. Historically low mortgage rates and low home inventories will likely drive an increase in US Single-Unit Housing Starts during at least the first half of 2021. Further good news for the consumer lies in the general decline of monthly US Initial Unemployment Insurance Claims as more firms find their footing in the pandemic-impacted business environment. Some data has softened recently: Unemployment Claims ticked up in early December, and the ITR Retail Sales Leading Indicator ticked down in December. However, these are isolated data points, at least for now. Don’t get caught up in the volatility of individual data points; instead, remember to watch trends. For the retail sector, rise in the Retail Sales quarterly growth rate – at 4.2% as of December – illustrates the general trend.

With the above giving confidence for the year ahead, work quickly to capitalize on the growth to come. Consider conducting market research to determine whether consumer preferences have changed due to the shutdowns. Ensure your online platform is competitive and that your products still align with your target market. Most importantly, make sure you have the people and equipment you need to take on growth this year. Those too timid to invest in the near term may face higher prices and longer lead times for capital purchases, which may in turn result in lost market share. Look at the economic evidence and act now.