Your Financial Health | Navigating the Recovery Road Map
» Commentary by Chad Warrick and Jason Print, CFP®, Co-Presidents and CEOs | January 24, 2022
Last year, we updated our clients on the financial health of the economy at the beginning of the pandemic. Since then, significant developments, including vaccines and boosters, have increased confidence while new variants, inflation, and supply chain issues continue to impact the global economy.
As we enter 2022, let’s look at how U.S. economic policy continues to change given the effects of the pandemic.
The Effects of the Pandemic Economy
The economic shutdown in the spring of 2020 had a significant effect on employment. The national unemployment rate rose to 14.8% in April 2020 as consumer demand for products dropped, and the shutdown impacted more than 25 million workers. However, a new problem emerged as the economy recovered: employee shortages. Stagnating wages and concerns over COVID-19 variants have led to slower growth in the service sector. As a result, there have been more job openings in the U.S. than at any other time in history; this labor shortage has led to gaps in the supply chain and fueled inflation increases.
Financial Recovery Plan for Small Businesses
In response to small business owners’ financial worries, President Joe Biden signed the American Rescue Plan Act of 2021. This bill provided emergency grants and lending to small businesses, allowing them to rehire and retain workers. It also gave $10 billion to state and local governments to fund small business credit expansion initiatives. Small business employees also benefited from monthly $1,400 stimulus checks and expanded child care tax credits.
The Stock Market in the Pandemic Economy
No infectious disease outbreak impacted the stock market as severely as COVID-19. The pandemic triggered one of the deepest stock market recessions in history and contracted the global markets by 3.6%. Dropping over 2,000 points in early March, the Dow Jones was launched into a bear market for the first time since early 2009. However, the stock market recovered at a quicker rate than other aspects of the economy, hitting an all-time closing high of 36,432.22 on November 8, 2021. While concerns about variants continue to influence the stock market, the record highs seen in late 2021 show the resiliency of our markets.
Image from First Trust
Four Stages of COVID-19 Economic Recovery
In most recessions, there are four stages in an economic recovery:
- Expansion
- Peak
- Contraction
- Trough
However, trying to predict economic recovery is challenging because the emergence of variants creates roadblocks. As a response to this unpredictability, four new stages of economic recovery strategies have been suggested:
Stage 1: Slow the Spread
The first phase of limiting the economic impact of COVID-19 variants is slowing the spread. Closing schools, working from home, and limiting large community gatherings are measures taken to manage the outbreak safely. These strategies are kept in place until the transmission has slowed down.
Stage 2: Reopening
A public health measure to slow the virus outbreak
Individual states can start reopening once they’ve safely diagnosed and isolated cases and their contacts. Schools and businesses can begin reopening, and normal interactions resume in a phased approach.
Stage 3: Lift Social Distancing
The lifting of social distancing measures is the third step and is enhanced by introducing vaccines and boosters. Identifying groups that are most at risk of serious illness determines which areas can completely reopen.
Stage 4: Prepare for the Next Pandemic
Developing healthcare measures for the next variant helps minimize their effects on economic growth. Erasing gaps in our responses will help us better prepare for the next infectious disease threat.
Summit Wealth Partners: Monitoring Economic Recovery in 2022 and Beyond
Now more than ever, it’s critical to have a financial partner capable of guiding you through these difficult times. The advisors at Summit Wealth Partners continue to review every development to determine how it affects the economic recovery and our clients’ financial outlook. Our commitment to proper risk management and transparency allows us to provide the highest standard of financial planning. We expect the pandemic to continue impacting the markets and everyday life and will provide more updates on how it impacts our clients as they become available.
Thank you to the brave healthcare workers, teachers, and many more who continue to serve their communities during these trying times.
