Gross Domestic Product (GDP) is the broadest measure of economic growth. The U.S. GDP grew 6.4% in the previous quarter. By any standards, that’s a remarkable growth rate. GDP for this quarter has dropped precipitously to a forecasted rate of 3.7%. At the start of the quarter, there were growth expectations of 6.5% from Oxford Economics and Morgan Stanley.
Typically, a 3.7% growth rate would be considered exceptional. However, measuring a $21 trillion economy is complicated and includes some mathematical estimates. I won’t run us through the calculation, but here’s the gist of it: the demand had been so significant that the inventory drawdown was massive. The mathematical adjustment for this quarter accounts for nearly three percentage points. Blah, blah, blah. The point is, GDP is running closer to flat for this quarter than the headline forecast suggests.
I suspect that there are multiple culprits to blame for the drop in economic growth. Offenders include satisfied pent-up demand, reduced federal unemployment benefits, and cautiousness heading toward the end of the eviction moratorium. Some would say the most significant culprit appears to be the COVID-19 Delta variant. It may be, but it’s difficult to determine why people do or don’t do certain things.
According to Google’s Mobility Report, fewer people have been visiting retail and recreation sites, and more people have been working from home. As you’d surmise, that means visits to transit stations are down.
That reduced mobility appears to be linked to the coronavirus. That hypothesis is corroborated by the fact that in August 2021, about 400,000 more people said they couldn’t work for pandemic-related reasons. Additionally, 1.5 million people have dropped out of the labor force due to the pandemic. The Bureau of Labor Statistics started tracking data like this in May 2020 to help gauge the effects of the pandemic on the labor market.
Throughout 2020, since the pandemic began, I had said that as goes COVID-19, so goes the economy. Although other factors are still contributory, the U.S. economy still can’t shake loose from the grasp of COVID-19.
Theoretically, President Joe Biden’s COVID-19 mandate should lead the U.S. to higher economic growth. On Thursday, Sept. 12, 2021, Biden announced a plan to get two-thirds of the country’s workforce vaccinated against COVID-19.
There’s no doubt that the pandemic has been politicized. Any conversation about masks and vaccines has become polarizing for many. If that’s you, I got nothing for you on that matter. I don’t have the luxury to use this column to make friends, nor can I help you if I’m afraid it will make me enemies. My job is to figure out if you’ll make money by investing in the market, and I can’t perform at my best if I try to be delicate.
The best way to figure out if the stock market is attractive is to start at the top and determine the future health of the U.S. economy. So, let’s agree to disagree or agree to agree. Whatever. Our focus is on making some money together. Let’s examine Biden’s COVID mandate and see if it will help the economy or be yet another reason to be concerned about our portfolios.
About three-quarters of Americans have had at least one shot of a COVID-19 vaccine, and about half are fully vaccinated. About one-fourth remain unvaccinated. There have been breakthrough cases of those inoculated against the virus. However, the majority of those getting infected have not received the vaccine. Some have described this wave of infections as a “pandemic of the unvaccinated.”
Biden’s goal is to get more people vaccinated so that restrictions and caution can disappear. Let’s quantify how much better the economy could be if the pandemic were behind us. I reported that in August 2021, about 400,000 people said they couldn’t work due to pandemic-related reasons. That’s a total of 5.6 million people who said they lost work because their employer closed or lost business due to the pandemic.
Let me restate this. The pandemic has resulted in 5.6 million fewer jobs today than in February 2020. Yes, businesses are hiring, but they aren’t finding employees. Part of the reason companies can’t find workers is because 1.5 million people don’t want to go back to work. Those reluctant workers fear health risks, have childcare challenges, or are concerned about other pandemic-related issues.
Suppose vaccines can get the economy back on track. In that case, Biden’s plan is likely a reason to get or remain invested in the equity market. Even if, for some reason, you don’t think that widespread vaccination will help mitigate infections, it doesn’t matter – other people believe it will. And because people believe vaccines work, more vaccinated Americans means more people will get back to working, traveling, shopping, and stimulating the economy.
So, what is it that Biden is doing? And can he get it done, legally or otherwise?
Biden wants to mandate COVID-19 vaccinations for:
- All government contractors
- Most federal employees
- Employees of companies with 100 or more workers
- Workers at healthcare facilities that receive Medicare or Medicaid reimbursement
In total, that would cover about 100 million employees, or two-thirds of the U.S. workforce. A company that doesn’t comply faces fines of up to $14,000 per violation. Presumably, the mandates will give corporations the cover they need to get people jabbed, since companies have been reluctant to do so independently out of fear of losing employees.
Biden’s plan includes other tactics to mitigate the spread of the virus. He wants to make COVID-19 testing more accessible and affordable by providing more rapid-testing sites and free at-home tests. He also wants to get the military more involved in helping hospitals and provide more coronavirus treatments. Also, penalties will double for airline passengers who don’t comply with mask rules.
Creating this plan was the easy part. You and I could have done this on a cocktail napkin while waiting for our drinks. The more complicated part will be enforcing it. In preparation for writing this column, I read about 20 legal opinions. Those opinions included comments from the Occupational Safety and Health Administration (OSHA), the Department of Labor, the National Treasury Employees Union, and university law professors. I still don’t know if the mandates are legal. Aside from some people wanting to win a political battle, I’m not sure if the legality matters to the stock market in the short term. The majority of opinions seem to be that this is all legal, federal law will trump state laws, and challenges will be shot down in court. However, appeals could delay this new mandate up to mid-2022.
If more vaccinated people means a better economy, this could be a boost for next year. The anticipation of a more-vaccinated 2022 should limit any stock market drawdown in 2021 to something in the 5-10% variety, instead of something bigger and bear-marketish. I’d use any dips as an opportunity to buy and not a harbinger of a reprise of March 2020.
Again, I know some readers can’t decide what they hate more — Biden, vaccines, or masks. Some of you will want to shoot the messenger. That’s fine. Shoot away. Just take my advice first so that you can afford to take me out with a better gun.
But before you take aim, here’s the M. Night Shyamalan twist — I don’t know if the juice is worth the squeeze. According to data compiled by the Centers for Disease Control (CDC), between COVID-19 vaccinations and people who have already contracted the virus, the U.S. achieved herd immunity months ago.
The most controversial part of Biden’s plan is the mandate of worker vaccinations at companies with 100 or more employees. OSHA will have to go through a rule-making process. I suspect that the White House didn’t want this leaked. OSHA probably only heard about this when the rest of us did. OSHA is scrambling to get things in place. Legal challenges aside, OSHA will need time to implement guidance on how to do this. And then, a grace period will be in effect before enforcement. By the time those workers who don’t want the shot are forced to get it, it’ll be mid-2022. Of those in that group, a considerable number of them will have attained antibodies through natural infection.
Only about 14% of people say they won’t get a COVID-19 vaccine no matter what. And only 3% more say they’ll get it only if required. Let’s assume half of those folks become naturally infected by the time vaccination is mandated. What is that? An additional 9% of the population get vaccinated? According to an NBC News Poll, 44% of people are against vaccine mandates for in-person work. I don’t know if it’s worth it or not to divide the nation further. I’d prefer to see incentivization over penalization.
This article originally appeared in The Berkshire Edge on September 20, 2021.