White House economic adviser Larry Kudlow (Larry Kudlow) insisted that the United States economy is in a “V” type recovery. In this regard, the United States senior analyst Ron Sauna (Ron Insana) opposing attitude, claiming that a number of indicators show that this is not the case.
Sana believes that consumers are using some kind of goods or services to replace another goods or services, leading to imbalances throughout the economy.
In a newly released article, the analyst says, “The first concept you learn in an economics course is the so-called ‘substitution effect.'”
In short, if beef becomes prohibitively expensive, consumers will easily substitute chicken for beef. When a drop in demand causes the price of beef to fall back down, consumers will buy beef again. Sana noted, “We see this effect at work in the economy, not so much because it’s price related, but because of the behavior associated with the new crown epidemic.”
In Sana’s view, those who believe the U.S. economy is rebounding strongly ignore this very visible phenomenon, including Kudlow.
In an interview this Wednesday morning, Kudlow said that a “V” shaped recovery remains his basic expectation for the U.S. economy based on recent data.
Sarna claimed, “I don’t agree with (that view).” The analyst’s view is that Kudlow is wrong and that there is no V-shaped recovery in the U.S. economy, just a brief rebound.
He explains that auto sales, for example, have indeed increased, but at the cost of a sharp drop in consumer spending on air travel, train travel, and public transit travel.
The neo-crown epidemic is changing the behavior of American consumers in an understandable way. Currently, business travel has been greatly reduced, while travel and recreation (if it can still be enjoyed) has turned into driving trips, car rentals, or walks in nature. Many people are leaving crowded gyms and purchasing their own exercise equipment in favor of exercising at home.
This shift in behavior is certainly a huge blow to fitness facilities, just as streaming platform Netflix has taken business away from movie theaters that have been forced to temporarily close their doors. As a result, as people begin to protect themselves, their travel habits become increasingly isolated or limited to family and close friends.
A similar situation is occurring in the residential real estate sector.
Sana notes that American consumers are increasingly buying homes in the suburbs. People who have lived their entire lives in large cities that are densely populated and have a high cost of living are leaving those cities. As the neo-crown epidemic has killed a large number of people, urban dwellers in the U.S. are pulling out of narrow hotspots on a massive scale. Their decision to do so is in large part due to health concerns.
Housing prices are also a major factor, prompting people to want to find more space at a significantly lower cost. Just look at the data on home sales and rentals in major cities like New York, San Francisco and Los Angeles. The data is very telling.
Home isolation and working remotely from home are also accelerating this buying trend. At the same time, giving employees the freedom to choose (what to do or how to do it) has had little impact on compensation or productivity, at least so far.
Sana notes, “We’ve certainly seen the same ‘substitution effect’ in the restaurant industry since the economic lockdown. As winter approaches, we may see this effect affect the restaurant industry again in a more pronounced way. During the winter months, there will be a massive reduction in outdoor dining and people who work from home will rejoin the ranks of those who cook at home.”
Grocery stores, delivery services and takeaways will once again proliferate, once again at the expense of a precipitous drop in eating out. Therefore, Sana believes that, although it makes sense to invest in the beneficiaries of the “substitution effect”, but, however you think about it, say that the U.S. economy is showing a “V” recovery is not reasonable.
Therefore, this is still a rotational recovery, as the stock market shows, investors will transfer their funds to those who not only survived the new crown epidemic, but also in the epidemic in the vigorous growth of the company.
Sana added that, of course, the U.S. gross domestic product (GDP) will rebound in the third quarter as a result of the economy restarting in warmer weather, but that won’t last long.
Sana said: “What must be clear to investors is that unless, or until, we see more fiscal bailouts and stimulus initiatives in place, as well as better treatments and the debut of effective vaccines, the U.S. economy will recover selectively.”
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