August 2021 | Mid-Quarter Update

July and early August brought us two events that are worthy of mention. First, the National Bureau of Economic Research (NBER), the entity charged with dating business cycles, declared the recession of 2020 to have ended in April 2020. Ending just two months after its beginning in February, it was the shortest recession on record. This news came as no surprise, since it had been widely anticipated for some time. But, the official declaration does highlight the fact that the economy is now in a different phase and suggests a constructive view of what lies ahead.

Over the last fifty years, there have been seven recessions of varying lengths. The good news is that once they end, they don’t typically occur again for another six or seven years, on average. Since we find ourselves only 16 months into the new recovery/expansion phase, it is reasonable to expect that the next recession will begin at a fairly distant point in the future. We believe this is good news for stock investors, for as long as the economy is growing, companies have a favorable operating environment and are able to consistently push their earnings and dividends higher. Rising earnings and dividends are a platform for higher stock prices.

The second notable event occurred in early August when the unemployment report for July was released. To say it was a good report would be an understatement. At 943,000 new jobs, this was the strongest employment number in decades. Not only was the month strong, but the average for the last three months is 832,000 jobs. These numbers come as very good news and indicate that the economy is healing rapidly. The headline unemployment number dropped to 5.4% from 5.9%, a dramatic one-month improvement. We are not yet at full employment, which is 4% or lower, but we are making steady progress in that direction.

Full employment seems to have positive implications for the economy. At some 70% of Gross Domestic Product (GDP), we believe consumption is the lifeblood of our economy. Employment means income, and income is the basis of consumption. The popular saying, “one person’s spending is another person’s income” is perhaps the best summation of how our economy works. We are all co-dependent on the ability to work, earn money, and spend it. This never-ending cycle, when powered by full employment, leads to faster economic growth and rising standards of living.

We note these two events as markers on the road to a healthier and more balanced economy. As such, our outlook remains basically constructive. We realize there are still areas of concern within the economy and problems to be solved. But importantly, we are moving in the right direction. Within this environment we will continue to seek out for the portfolios the highest quality, most fundamentally sound securities we can find.

Crawford Investment Counsel Inc. (“Crawford”) is an independent investment adviser registered under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about Crawford including our investment strategies and objectives can be found in our ADV Part 2, which is available upon request.

This material is distributed for informational purposes only. The opinions expressed are those of Crawford. The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass.

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