The Week Ahead – On the Road Again

Welcome to “The Week Ahead” where we take a moment to provide our thoughts on what we can expect in markets and the economy during the upcoming week.

Memorial Day weekend is often thought of as the unofficial beginning of summer. As the summer temperatures spike, signs point to a hot economy as the recovery continues to accelerate. Both quantitative and qualitative evidence confirm that we will see surprisingly robust economic growth as we head into the second half of 2021. In large part, the rapid reopening of the economy is based on the success with vaccinations. I am happy to report that since being vaccinated, I have begun to engage in face-to-face meetings again. This week, I am heading to Sacramento to visit clients that I have not seen in nearly two years. I have to say, it has been really nice being able to see clients in a non-virtual format. While I have no doubt the increase in virtual meetings is here to stay, there is nothing that can fully replace the benefits of in-person meetings.

We continue to see strong economic data, as well as anecdotal evidence that is consistent with our view that the economy will continue to surprise to the upside.

• JFK airport had nineteen times more people than just three months ago.
• A four-day car rental in June was $963 vs. $375 two weeks ago in San Francisco.
• McDonald's is offering free iPhones to new hires.

The robust recovery is being driven by a combination of: massive monetary stimulus, global reopening, accelerating economic growth, pent-up demand, and excess savings. All this demand for goods has driven inflation higher over the near-term, but we believe pricing pressures will ameliorate as the consumption of services comes back online and starts to take some of the wallet share away from goods. Indeed, OpenTable reservations are now at a post-pandemic high. Recently, some single-day restaurant reservations have even been above 2019-levels. People are champing at the bit to socialize and have some fun!

Vaccination uptake is down domestically, but the U.S. has already administered at least one dose to 62% of its adult population. Europe has administered vaccines to 43% of its adult population and is now inoculating at a rate faster than our own. China is leading the vaccination charge in Asia, but unfortunately, other emerging market countries continue to struggle – of particular note: India, Brazil, and more recently Vietnam is having a surge in cases.

There are key domestic economic releases almost every day this week. The regional Purchasing Manager Indexes (PMI) and Fed surveys have been generally positive: The Manufacturing ISM Index likely edged up to 61.0, somewhat above consensus and solidly in expansion territory. Motor vehicle sales likely slowed to 17.5 million, even with fleet sales robust. However, the key release of the week will be payroll employment. We expect a 925,000 gain for May’s payrolls pushing the unemployment rate down to 6.0%. Average hourly earnings likely advanced +0.2% for the month, but the annual increase, which we estimate will be reported as +1.7%, is distorted in large part by a mix shift: low wage earners that were initially laid off, but are now are being hired at a much faster rate than the high wage cohort.

Data deck for May 31–June 4: