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Business Conditions 5/12/20

“It is a mistake to try to look too far ahead. The chain of destiny can only be grasped one link at a time.” - Winston Churchill

We have been writing about Business Conditions as reported by the Federal Reserve Bank of Philadelphia since early in the recovery following the Great Recession. The report cited is the Aruba-Debold-Scotti Business Conditions Index. 

When the economy shut down in response to Covid-19, the index plummeted. The decline was unprecedented in both its suddenness and depth. 

Previously we had reported favorable conditions to be in place throughout the period beginning in 2009. In March, as the economy shuttered and unemployment soared, the Business Conditions Index literally fell off the chart.

The ADS index makes use of quarterly data for real GDP growth, monthly data for payroll employment, industrial production, personal income less transfer payments, and manufacturing and trade sales, and the weekly initial unemployment claims. 

Our expectation is for a gradual increase in business as restrictions are removed. We do not expect a rapid improvement in the economy but we do expect surprisingly better results than consensus views seem to indicate.

Because of the unprecedented fiscal stimulus already passed by Congress, the short-term damage done to the economy has been minimized. It does not mean all industries will recover. It is difficult to imagine how travel and restaurants, in particular, can return to their previous levels for sales and profits. 

But over time spending will be reallocated with other businesses benefiting. When airlines begin more normal schedules and cruise lines begin sailing, there will probably be fewer travel options and prices will be much higher. While those businesses will suffer, others will benefit. It is the natural course that follows all economic declines.

In addition to fiscal stimulus, the Federal Reserve has provided quantitative easing in amounts expected to exceed $6 trillion. Together with fiscal stimulus the combined sum of money being injected into the economy will approach 3 times the annual total of all Federal taxes, Social Security taxes and fees to be collected in the 2019-2020 United States’ budget. It is an enormous boost to the economy. It will help power the resumption of the long-term bull market that began in 2009.

Because Congress and the Federal Reserve have acted decisively, we continue to be positive regarding the outlook for equities and cautious regarding fixed income.


Thomas J. Curran    Kevin T. Curran, CFA
 CEO & Founder       President & CIO

Curran Investment Management® is Defining Quality®

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The material contained in this article is for educational and informational purposes only.  The information herein is considered to be obtained from reference sources deemed reliable, but no representation or warranty is made as to its accuracy or completeness.  This article is not, and should not be regarded as “investment advice” or construed as a “recommendation” or an offer to buy or sell a security.  The information contained in this article may not apply to your personal circumstances.  Before making any decision or taking any action, you should consult a professional advisor who has been provided with all pertinent facts relevant to your particular situation.  Information on taxes is based on the tax laws existing at the time of publication.  Tax laws are subject to continual change.  In addition, tax laws vary by state.  This article is not, and should not be regarded as tax or legal advice.  We cannot ensure tax consequences of any transaction.  If you would like a detailed analysis of your tax situation, with specific tax recommendations, you can discuss the possibility of pursuing a formal relationship with Hippo Tax Services, LLC.