By Leah Dunaief
A friend is planning to retire at the end of the year. His wife is already retired, and we three talked about the future. Since none of us has jobs with pensions, they are understandably trying hard to discern economic trends for the investments they hope will carry them through their golden years. Currently their money is mainly in stocks, which are doing well enough, but they, and the rest of us, have duly noted the disconnect between the stock market and the economy.
The stock market, of course, is not the economy but rather is thought to be one predictor of future economic trends at least six months ahead. There are others as well, and one place to get some insight is the PBS program, “Consuelo Mack WealthTrack.” Mack is the host of this weekly financial program, and in the tradition of “Wall Street with Louis Rukeyser,” which ran on the same channel (13) and in the same time slot (Friday, 7:30 p.m.) from 1970 to 2002, a guest each time discusses with her their area of expertise.
Originally broadcast on Oct. 9, a recent guest was economic guru Nancy Lazar, who spoke of four forces she sees as driving the economy to a powerful comeback. The first is, as you may have guessed, technology, which helps make companies more profitable. Lazar emphasized the importance of reinvestment in their companies by executives in order to stay up to date and to increase productivity.
As an example, she offers the sad story of Sears vs. the strong growth of Amazon. Businesses must keep up or be left behind. Technology, especially software, is a critical driver in a strong recovery. Banks are another example. Their movement to online services has been enabled by software developments and now COVID considerations using that software. And as she points out, the United States is the technology leader.
A second driver is housing, which brings with it so many related businesses and jobs: carpenters, painters, spacklers, roofers, plumbers, electricians, cesspool servicers, landscapers, driveway pavers, furniture and carpeting salesmen, and on and on. Housing is doing well, driven by exceptionally low mortgage interest rates, demand from millennials and now single family homes for COVID refugees from the cities.
A third driver for Lazar is manufacturing. She refers to the Rust Belt as her “favorite emerging market.” Disruption in the supply chains due to the pandemic have made companies aware of how much safer it is to make it here if they are going to sell it here. This has even become something of a national security issue. She counts 176 companies that have moved back to or started up in the United States since the beginning of 2020. States like South Carolina, Tennessee and Alabama have benefited.
And the fourth is capital spending. Lazar believes that the reinvestment that companies have made in their businesses as a result of the huge tax cuts has been underreported and underappreciated. While many companies have indeed increased their dividends and bought back shares, she has tracked reinvestment from some of that windfall and feels that will result in higher productivity, higher profits and more jobs. In order to grow, companies must reinvest, and when they do, the economy grows. A business cycle spurred by reinvestment — building new plants, hiring and training new workers -— lasts 30 years.
Meanwhile, many are out of work and there is a lot of pain. Lazar also recognizes that in every recovery, not all sectors improve. But she advocates for more business reinvestment to produce more jobs and believes that will lower unemployment to half by next year. Without a further stimulus package, she envisions a handoff from government to the private sector as a driver for healing unemployment. Consumers, meanwhile, are turning more conservative, having been hit by two shocks in the last decade: recession in 2008 and COVID now.
While Nancy Lazar is not an investment advisor, but rather an economist, she has pointed out areas that might be ripe for investment. Good luck to us all!