Economy sluggish? I don't understand

[sksbog]

Hello Bogleheads,

Help me understand this. All the news media articles are saying "economy may recover this year" " economy is sluggish" , etc.
But the stock market is all time high. People are making tons of money. Elon, just made it to richest man in the world.
Everyone's 401k/retirement accounts are swollen.

What I am missing? Why does it matter, even if economy is "sluggish"?

Thanks

[Hyperchicken]

Stock market is not economy.

Why does it matter, even if economy is "sluggish"?

It matters when you lose your job and can't find another one in a year.

[TheTimeLord]

Hello Bogleheads,

Help me understand this. All the news media articles are saying "economy may recover this year" " economy is sluggish" , etc.
But the stock market is all time high. People are making tons of money. Elon, just made it to richest man in the world.
Everyone's 401k/retirement accounts are swollen.

What I am missing? Why does it matter, even if economy is "sluggish"?

Thanks

Stock market is forward looking, you are comparing current conditions to a mechanism based on the probabilities of various the futures.

[Chrono Triggered]

This video might help:
https://www.youtube.com/watch?v=0ECqDaPjjV0

[C4NT]

Stock market is not economy.

+1

The local eatery that just closed down the street was not a publicly traded company.

The dozen or so employees probably didn't have a 401k or much money in the market.

This impacts the local economy, not the stock market.

[Triple digit golfer]

You said you don't understand that the economy is sluggish, but you're using stock market performance to try to gauge the economy.

[sksbog]

so if lot of people lost jobs, and stock market still is high, what are the affects of that? ( forgive me, just trying to understand)

[livesoft]

This was explained quite well in this thread and the linked article:

viewtopic.php?t=334968

https://www.nytimes.com/2021/01/01/upsh ... -2020.html

[Hyperchicken]

so if lot of people lost jobs, and stock market still is high, what are the affects of that? ( forgive me, just trying to understand)

The rich get richer, and the poor get poorer.

[wolf359]

The stock market is not the economy. It IS one way to measure the economy, but not the only one.

Here are other yardsticks, which, when taken as a whole, measure how the economy is doing:

- US Economic Growth, as measured by changes in the GDP, seasonally adjusted
- US Unemployment rate
- Average Hourly earnings
- Poverty Rate
- New applications for unemployment benefits (early indicator of slowing economy)
- Consumer Spending (Personal Consumption Expenditures) (used by Fed to measure inflation)
- Consumer Confidence (Fed Surveys that predict future spending)
- Housing Starts
- Manufacturing numbers

The US is currently and officially in a recession by these measurements. Yes, the stock market went into bear territory, but has since recovered to all-time highs. But the economy is showing a K-shaped recovery. Some parts declined and came back, forming a "V" shape (top of the K). The economy tied to the service industry, hospitality, travel, restaurants, and related components dropped, and have stayed down (bottom half of the K.

If you google for photos, you will see modern day breadlines. They're not in your neighborhood, but they're there.

[hnd]

There are like 7-8 million businesses in the US. the stock market only respresents like 3500 of them. and those 3500 businesses are giant enough potentially withstand or even come out of the pandemic stronger as they absorb the revenues of the smaller businesses that no longer exist.

my buddy works in brewery/food business lending. 40% of his clients have or are getting ready to file for bankruptcy.

[alex_686]

so if lot of people lost jobs, and stock market still is high, what are the affects of that? ( forgive me, just trying to understand)

The rich get richer, and the poor get poorer.

To extend on this, the stock market is heavily weighted towards companies that can either thrive during the pandemic (Amazon, Netflix - estimates suggest that digitization of stuff has been pushed forward by 5 years) or have the resources to due relatively better then their smaller counterparties (Target, Wal-Mart). High skill people tend to be able to work remotely. Or at least are better able to adapt.

On the other side, lots of small small business and low skill workers have been devastated. See restaurants, bars, theaters, arts, barbers, etc.

The value of equities are the Discounted Free Cash Flow to Equity. Discounted, as in discounted by time and risk. We can debate this point but the market has only seen a small rise in risk or lowering of future earnings. Critically, interest rates have dropped like a stone. That means that future earnings are worth more now.

[tim1999]

Anecdotally, where I life, everything other than restaurants, bars, entertainment venues, hotels, and non-essential brick and mortar retail seems to be going absolutely gangbusters. An out of work restaurant employee could probably easily get a job with one of the delivery services or warehouses that are just about begging for applicants right now.

[Grt2bOutdoors]

You go to a party - the punch bowl is spiked with alcohol, inhibitions are lowered, people make fools of themselves on the dance floor and elsewhere.

The punch bowl is taken away and in its place is cold ice water and some ginger ale. What happens? People start sobering up, the liveliness dies down, people get off the dance floor. Party is dying and in its place are hangovers.

Welcome to the stock market.

[Frank the Tank]

Anecdotally, where I life, everything other than restaurants, bars, entertainment venues, hotels, and non-essential brick and mortar retail seems to be going absolutely gangbusters. An out of work restaurant employee could probably easily get a job with one of the delivery services or warehouses that are just about begging for applicants right now.

"Easily" getting a job in one of those areas is a bit (a lot?) of an overstatement. Delivery services generally entail independent contract work. Warehouses are growing fast, but they aren't growing so fast that they're replacing lost brick and mortar retail jobs on a 1-to-1 basis (or anywhere close to that).

[burritoLover]

The market has an aggregate optimism or pessimism in it at any given time. It currently seems very optimistic. You can see if fighting against bad news that, in other time periods, would cause more of a negative reaction. It is forward looking but it has a very optimistic view on the post-pandemic earnings. Although there can be other reasons beyond outright optimism such as TINA.

[Frank the Tank]

so if lot of people lost jobs, and stock market still is high, what are the affects of that? ( forgive me, just trying to understand)

The rich get richer, and the poor get poorer.

To extend on this, the stock market is heavily weighted towards companies that can either thrive during the pandemic (Amazon, Netflix - estimates suggest that digitization of stuff has been pushed forward by 5 years) or have the resources to due relatively better then their smaller counterparties (Target, Wal-Mart). High skill people tend to be able to work remotely. Or at least are better able to adapt.

On the other side, lots of small small business and low skill workers have been devastated. See restaurants, bars, theaters, arts, barbers, etc.

The value of equities are the Discounted Free Cash Flow to Equity. Discounted, as in discounted by time and risk. We can debate this point but the market has only seen a small rise in risk or lowering of future earnings. Critically, interest rates have dropped like a stone. That means that future earnings are worth more now.

This is true - 20% to 25% of the broader stock market indices such as the S&P 500 are concentrated in the top tech companies right now (Apple, Amazon, Microsoft, Alphabet/Google, Facebook, etc.). It actually makes quite a bit of sense that their market caps have increased dramatically over the past year since they have consolidated their power even further. Most of the S&P 500 recovery from March 2020 to October 2020 was driven by that small handful of stocks.

Whether the more recent runup in the stock prices of small cap and value companies (which were and continue to be much more negatively impacted by the pandemic) over the past couple of months can be maintained is a different question.

[JoMoney]

If you look at the fundamentals of various businesses, they're not all doing well. Some of the big box stores and Amazon are doing well, as well as some tech and pharma. Your local dine-in restaurant, performance stage venue, and many small merchants aren't doing so well.
I'm getting paid to spend lots of time at home, as well as bonus checks (tax rebates ) from the government for doing nothing. I'm not sure what to make of the "economy" in it's current state, but I don't think it's sustainable.

[Anon9001]

The revenue exposure is global for US Large Caps not restricted to one country and also the US stocks are concentrated in Tech and Health-Care which do well in the current environment.

[Williams57]

A lot of people are having a hard time. Long lines at food banks. Record homelessness and unfortunately about to get worse imho.

A lot of people lived paycheck to paycheck before Covid. Now imagine what these people are unemployed.

This website only captures a tiny % of the total populace. I too am living in my own bubble, but do some volunteer work and get exposure to "reality". Plus tons of homelessness in my area. It's really sad.

[MiddleOfTheRoad]

so if lot of people lost jobs, and stock market still is high, what are the affects of that? ( forgive me, just trying to understand)

Have you noticed that when a company goes through a “restructuring” (mass layoff), its stock goes up?

[Scooter57]

The median household income in the US in 2019 was $68,703.

Try paying rent or mortgage, winter heat and electricity bill, groceries, insurance, doctors' bills not covered under the typical very high deductible policies available now, car repairs, children's' many expenses, etc, etc, from that amount and how much do you end up with to put into the market? A family who has struggled to save $20,000 in their retirement account but have lost $28,000 in wages from one parent is not celebrating the bull market.

And that $68,703 is median family income, often with two people working. That means half of American households make less. In my county the median family income was in the low $50s last year, but our biggest employers are associated with a University and some colleges that are all remote right now. Most businesses catered to students who aren't here. So businesses that have been going for 50 years or more are closing left and right,

My daughter and her friends runs a free food service for people in a working class neighborhood in a major city where rents are extremely high, even now. The demand for bread and milk for kids is off the charts as so many locals were employed in low wage service industries that have lost work. We are talking cleaners not needed in empty office buildings, restaurant and bar workers, workers in hair and nail salons, taxi drivers. These people living in a big city don't have their own cars in which to drive for Uber or Doordash. They take public transportation, which has exposed them to the virus, which is why her neighborhood has an off the charts daily virus infection count.

There is some serious hardship out there among hardworking people who were just hanging on before this crisis.

[Williams57]

Anecdotally, where I life, everything other than restaurants, bars, entertainment venues, hotels, and non-essential brick and mortar retail seems to be going absolutely gangbusters. An out of work restaurant employee could probably easily get a job with one of the delivery services or warehouses that are just about begging for applicants right now.

All these delivery services are extremely low pay jobs. They are begging for applicants for a reason.

[willthrill81]

so if lot of people lost jobs, and stock market still is high, what are the affects of that? ( forgive me, just trying to understand)

To be frank, the majority of those who have lost their jobs had below average income and were not the biggest contributors to GDP. This doesn't mean that they are not valuable as people, but economically, not everyone is equal.

[wolf359]

What I am missing? Why does it matter, even if economy is "sluggish"?

I used to use the definition:

"A recession is when a lot of people are out of work.

A depression is when you're out of work, too."

During the Great Depression, 1/3 of the population was out of work. That meant that 2 out of 3 people were actually employed.

At the beginning of the pandemic, unemployment was reaching Great Depression levels. Even now, it is really high, in excess of 7%. In some states (like Hawaii), it hit 30-40% and stayed there. (Hawaii is isolated and 1/3 of their economy is dependent on tourism.)

The stock market is like a boy walking his dog. When his dog is excited, it pulls him along in various directions. The dog can get quite far ahead of the boy, but is always tethered by a leash. If the boy changes directions or stops, the dog has to comply.

Think of the boy as earnings, and the dog as market sentiment. The market can get very excited and anticipate what the boy is going to do, but in the end, it's earnings that matter.

And if lots of people are out of work, it is difficult for corporate earnings to grow. Slow growing economy = sluggish.

[Normchad]

The way it looks is very dependent oh where you live, who you are, and the types of employment your friends and family have.

At the start of COVID, everything was unknown. Now we know that a lot of businesses and employees were able to transition to remote work, almost over night. For those businesses and people, things haven’t been too bad.

The pandemic has been a big disruption though. If you work retail, travel, hospitality, movie theatres, etc, you’ve been hit hard. Even though some of those businesses are still open, and some displaced people found new work, it isn’t the same. So overall, I am believing in the sluggish feeling.

And the disruption should not be overlooked. Some things that shifted to online might never shift back. Brick and mortar retail was struggling before this,I’m think it will be permanently reduced now. The retail is still happening, but Amazon, overstock, way fair, Walmart and target online are mopping up the excess. My company had been looking for additional office space, but WFH has gone so well, we may not need it now.

It will be interesting to see the GDP numbers when they come out.

I live in the DC metro area. Things feel pretty normal here. Everybody I know still has a job. The trash man is still working. The stores are still open, although I have t gone in. The only things I’ve seen closed are churches, movie theatres and the yankee candle shop. I’m sure there are others, it’s just not apparent to me, where I live.

Recent college grads are having a hard time getting started. And we will have a new crop of college grads in a couple of months. Their struggled contributed to the overall sluggishness I’m sure.

[KlangFool]

so if lot of people lost jobs, and stock market still is high, what are the affects of that? ( forgive me, just trying to understand)

sksbog,

Affects of what?


A) If you are unemployed, this is very bad for you.


B) If you are a stock owner, this is very good for you.


C) If you are both like me, it depends on how big your portfolio is.


KlangFool

[livesoft]

...and the yankee candle shop.

With people losing their sense of smell, there is really no reason to buy Yankee Candles anymore.

[7eight9]

Hello Bogleheads,

Help me understand this. All the news media articles are saying "economy may recover this year" " economy is sluggish" , etc.
But the stock market is all time high. People are making tons of money. Elon, just made it to richest man in the world.
Everyone's 401k/retirement accounts are swollen.

What I am missing? Why does it matter, even if economy is "sluggish"?

Thanks

Not everyone has a 401k (or even the option ot open one).

While the 401k is one of the best available retirement saving options for many people, only 32% of Americans are investing in one, according to the U.S. Census Bureau (as of 2017). That is staggering given the number of employees who have access to one (59% of Americans).
https://www.personalcapital.com/blog/re ... Americans).

Those who have them don't necessarily have a lot in them.

The average 401(k) balance is $92,148, according to a 2019 Vanguard analysis of over 5 million 401(k) plans issued by the company.
The median 401(k) balance is $22,217, a better indicator of what the majority of Americans have saved for retirement.
https://www.businessinsider.com/persona ... 1k-balance

A rising tide lifts all boats. A rising stock market? Not so much.

[Normchad]

...and the yankee candle shop.

With people losing their sense of smell, there is really no reason to buy Yankee Candles anymore.

Those candles were my COVID test.

[Grt2bOutdoors]

so if lot of people lost jobs, and stock market still is high, what are the affects of that? ( forgive me, just trying to understand)

To be frank, the majority of those who have lost their jobs had below average income and were not the biggest contributors to GDP. This doesn't mean that they are not valuable as people, but economically, not everyone is equal.

Is that so? Perhaps, but let’s say a fellow who makes 100k loses his employment - is that a below average income? Now multiply that by thousands of people at that income level. To be frank, the pandemic has had wide and far economic repercussions and it’s not just those with below average incomes but the media will focus on that swath of the economy because the sheer volume of people and families affected are in those sectors but make no mistake industries all across the country have been impacted. It’s banking, energy, professional services (dentists, yes even they are losing jobs), advertising, public sector, etc.

[willthrill81]

so if lot of people lost jobs, and stock market still is high, what are the affects of that? ( forgive me, just trying to understand)

To be frank, the majority of those who have lost their jobs had below average income and were not the biggest contributors to GDP. This doesn't mean that they are not valuable as people, but economically, not everyone is equal.

Is that so? Perhaps, but let’s say a fellow who makes 100k loses his employment - is that a below average income? Now multiply that by thousands of people at that income level. To be frank, the pandemic has had wide and far economic repercussions and it’s not just those with below average incomes but the media will focus on that swath of the economy because the sheer volume of people and families affected are in those sectors but make no mistake industries all across the country have been impacted. It’s banking, energy, professional services (dentists, yes even they are losing jobs), advertising, public sector, etc.

Certainly everyone has been impacted, and I never said otherwise. But not everyone has been equally impacted, not by a long shot. That was my point. The graph below from the BLS indicates this.


https://www.bls.gov/charts/employment-s ... inment.htm

[Broken Man 1999]

As well, different areas have been impacted differently.

In Florida, our schools (at least in my grandchildrens' district) have been open since September.

Extremes can be found at both ends, open and closed.

The parents of our grandchildren have not missed a payday. Even around here though, eateries aren't full as they are practicing safe distances with the patrons, and the wait staff is gloved and masked.

Many areas are still locked down tightly, schools are closed.

Broken Man 1999

[alex_686]

Certainly everyone has been impacted, and I never said otherwise. But not everyone has been equally impacted, not by a long shot. That was my point. The graph below from the BLS indicates this.

This understates the issue. This only measures unemployment - that is people actively looking for work. Workforce engagement is even worse. Many people have just dropped out of the labor force.

[Tamarind]

...and the yankee candle shop.

With people losing their sense of smell, there is really no reason to buy Yankee Candles anymore.

On the contrary, now is the only sensible time to buy them.

[willthrill81]

Certainly everyone has been impacted, and I never said otherwise. But not everyone has been equally impacted, not by a long shot. That was my point. The graph below from the BLS indicates this.

This understates the issue. This only measures unemployment - that is people actively looking for work. Workforce engagement is even worse. Many people have just dropped out of the labor force.

Certainly. My point was that those earning lower incomes to begin with have been impacted more than others.

[iiaudio]

so if lot of people lost jobs, and stock market still is high, what are the affects of that? ( forgive me, just trying to understand)

To be frank, the majority of those who have lost their jobs had below average income and were not the biggest contributors to GDP. This doesn't mean that they are not valuable as people, but economically, not everyone is equal.

Is that so? Perhaps, but let’s say a fellow who makes 100k loses his employment - is that a below average income? Now multiply that by thousands of people at that income level. To be frank, the pandemic has had wide and far economic repercussions and it’s not just those with below average incomes but the media will focus on that swath of the economy because the sheer volume of people and families affected are in those sectors but make no mistake industries all across the country have been impacted. It’s banking, energy, professional services (dentists, yes even they are losing jobs), advertising, public sector, etc.

This is my situation. I made $100k+ pre-pandemic, unemployed since March and employers looking to hire won't consider me because they know when this is over, I'm back to my old gig.

[JoeRetire]

But the stock market is all time high. People are making tons of money. Elon, just made it to richest man in the world.
Everyone's 401k/retirement accounts are swollen.

What I am missing?

You seem to be missing the fact that the stock market is not the economy.
You seem to be missing that most people are not making tons of money.
You seem to be missing that Elon has nothing to do with the rest of the 7.7 Billion people in the world.
You seem to be missing that only about 40% of people in the US even have a 401k.
You seem to be missing that 6.7% of folks in the US are unemployed.
Etc, Etc.

[Ramjet]

What I am missing? Why does it matter, even if economy is "sluggish"?

Look at what kind of companies make up the S&P 500

Are these companies impacted very much if service workers lose their jobs?

Are these companies impacted very much if a small business shuts down?

[Grt2bOutdoors]

Certainly everyone has been impacted, and I never said otherwise. But not everyone has been equally impacted, not by a long shot. That was my point. The graph below from the BLS indicates this.

This understates the issue. This only measures unemployment - that is people actively looking for work. Workforce engagement is even worse. Many people have just dropped out of the labor force.

I agree with your statement but would like to add that the graph doesn’t include those who no longer qualify for unemployment insurance and are still actively looking for work. I think BLS is unable to account for those who are unrecognized by state unemployment offices.

[Grt2bOutdoors]

What I am missing? Why does it matter, even if economy is "sluggish"?

Look at what kind of companies make up the S&P 500

Are these companies impacted very much if service workers lose their jobs?

Are these companies impacted very much if a small business shuts down?

Look at middle market businesses - those businesses are affected but even more so are the “mom and pop” storefronts that even if not shut down have high fixed costs and much lower revenues. How long can they survive on 1/4 or 1/2 the normal volume. My local newspaper storefront is looking to close down - too costly to remain open paying rent with no customer traffic.

[willthrill81]

Certainly everyone has been impacted, and I never said otherwise. But not everyone has been equally impacted, not by a long shot. That was my point. The graph below from the BLS indicates this.

This understates the issue. This only measures unemployment - that is people actively looking for work. Workforce engagement is even worse. Many people have just dropped out of the labor force.

I agree with your statement but would like to add that the graph doesn’t include those who no longer qualify for unemployment insurance and are still actively looking for work. I think BLS is unable to account for those who are unrecognized by state unemployment offices.

Again, my point was not to say that the BLS numbers are accurate with regard to the unemployment rate, the participation rate, etc., merely to demonstrate that those with higher incomes, who have a proportionately greater impact on the economy, have not been impacted as much as those with lower incomes.

What I am missing? Why does it matter, even if economy is "sluggish"?

Look at what kind of companies make up the S&P 500

Are these companies impacted very much if service workers lose their jobs?

Are these companies impacted very much if a small business shuts down?

Look at middle market businesses - those businesses are affected but even more so are the “mom and pop” storefronts that even if not shut down have high fixed costs and much lower revenues. How long can they survive on 1/4 or 1/2 the normal volume. My local newspaper storefront is looking to close down - too costly to remain open paying rent with no customer traffic.

Many independent stores are surely going to fold as a result of all this. Many landlords will go bankrupt, and their prior properties will be at high risk of being pulled from the rental market entirely.

[Nate79]

A lot of people just learned a hard lesson in the meaning of the word risk. There are still about 10m people unemployed, half recovered from the big jobs lost but a total population of 330m plus this in perspective.

Not everyone is hiding in their house.

[willthrill81]

A lot of people just learned a hard lesson in the meaning of the word risk. There are still about 10m people unemployed, half recovered from the big jobs lost but a total population of 330m plus this in perspective.

Not everyone is hiding in their house.

Interestingly, the common wisdom is that you're likely to lose your job at the same time that stocks are crashing, but that's not remotely true for the 10 million still unemployed.

I've never found the logic that personal unemployment, especially among college grads, which is the majority of this forum I'm sure, strongly correlates with stock market performance very persuasive.

[oken]

...and the yankee candle shop.

With people losing their sense of smell, there is really no reason to buy Yankee Candles anymore.

Those candles were my COVID test.

Why hello neighbour. You'd like to borrow the salt?
Wait a minute. Smell this candle.

[Trader Joe]

Hello Bogleheads,

Help me understand this. All the news media articles are saying "economy may recover this year" " economy is sluggish" , etc.
But the stock market is all time high. People are making tons of money. Elon, just made it to richest man in the world.
Everyone's 401k/retirement accounts are swollen.

What I am missing? Why does it matter, even if economy is "sluggish"?

Thanks

I would definitely tune out the noise. The stock market is always forward looking.

In my neck of the woods the economy is doing really great.

My retirement accounts and my taxable accounts are all doing really great.

It is a great time to be alive.

[MishkaWorries]

Right now there is a tremendous amount of government assistance and regulations masking the true problems in the economy.

Low income workers who lost their jobs are doing ok with the State unemployment benefits plus the feds supplement. What's going to happen when that subsidy is removed? Hopefully we'll be back to normal and the jobs will be back. If not?

I've heard many people are saving money by not paying rent or mortgage. What happens when that relief is taken away.

We'll see what the future holds. No one knows nothing.

[tibbitts]

Hello Bogleheads,

Help me understand this. All the news media articles are saying "economy may recover this year" " economy is sluggish" , etc.
But the stock market is all time high. People are making tons of money. Elon, just made it to richest man in the world.
Everyone's 401k/retirement accounts are swollen.

What I am missing? Why does it matter, even if economy is "sluggish"?

Thanks

You are missing that the stock market is not the economy, and that "the economy" isn't the same for everyone.

[dukeblue219]

Everyone else has pretty well handled this one. Remember that Bogleheads is not what normal Americans are like. Most people are worried that they can't make next month's rent if they lose their job, and it's not because they blow their money on lotto tickets and booze. They don't care about 401ks becausd they don't have one.

It's a hard time right now. Even if net economic activity is the same, the structural changes are HUGE. If you work at a hotel in Memphis and nobody is traveling, you can't just get another job at another hotel, nor can you suddenly retrain to install engines in SpaceX rockets in Texas. COVID messed up a lot people's carefully balanced lives.

[Jack FFR1846]

Something else to consider. New grads just coming out of college last May were slated to start new jobs in late spring/early summer. My older son just graduated and luckily, people are still using structural engineers for a number of services, from new buildings, stone work, investigations of insurance claims, evaluating buildings for structural integrity after something happens. In any case, my son's start date was delayed about a month because of covid. He knows dozens of his classmates who had job offers that were rescinded because the companies froze out new hires, including college hires. My own employer did this. So now we have new engineers driving Uber, working at Amazon, looking for any employment.