As everyone knows, the pandemic lockdown in spring 2020 shuttered economies around the world, sending markets into a tailspin and creating widespread anxiety as people began to fall ill from the disease and health agencies scrambled to find answers. Since then, with the advent of vaccines and other public health measures, the world has slowly returned to something approaching “pre-pandemic normal,” though concerns remain, especially with the current rise of the delta variant and other mutations of the coronavirus that causes the disease.

A Good Recovery

How has the US economy performed during the recovery period, as compared with that of the Eurozone?  In the first quarter of 2021, at roughly the same time as the vaccine rollout, US gross domestic product (GDP) grew at an annual rate of 6.4%, which followed a 4.3% growth rate in the last quarter of 2020. By contrast, the GDP in the Eurozone shrank by 0.6% during the first quarter of the year.

Since then, as we moved into the summer and widespread easing of lockdown measures in the US, domestic GDP appears to have responded with a robust growth rate of 6.5%, though this is an advance measurement, as final figures for July are still being tabulated by the US Bureau of Economic Analysis (bea.gov). At the same time, the Eurozone presented evidence of a return to growth mode, moving out of contraction and expanding at a rate of about 2%. From the lows of the 2020 lockdown, this represents an improvement in the European economy of almost 14%.

How about employment? By the end of the first quarter of 2021, unemployment in the US stood at 6%, compared with the pre-pandemic low of 3.5% unemployment in February 2020, just before the lockdowns. By the end of Q2 2021, the rate stood at about 5.4%, greatly improved from the double-digit highs during the lockdown, but still above pre-pandemic levels. In the Eurozone, meanwhile, unemployment stood at 8.1% at the end of the first quarter of 2021, and since then has improved slightly, to 7.7%.

The Way Back

The US economy seems to be leading the world back toward recovery. Of course, as always, uncertainties remain. The current surge of the delta variant is still worrisome, because if infection, hospitalization, and death rates increase to alarming levels, businesses, consumers, and states will likely begin to consider more drastic measures in order to curb the spread and conserve space in hospitals so that the most critically ill can receive adequate care. One encouraging trend, however, is that more individuals are making the personal decision to receive the vaccine. As the percentage of COVID-resistant individuals in the population increases, the less we will need to be concerned about rising infection rates or a return to the stringent measures of early 2020. That will be a good thing for everybody.

As professional, fiduciary wealth managers and financial advisors, we stay abreast of current developments and the latest financial research in order to provide our clients with the facts and recommendations they need to create robust financial plans for the future. To read our recent article about investments for long-term returns, click here.

One aspect of the COVID-19 pandemic that few seem to be talking (or writing) about is the impact of those hundreds of thousands of COVID deaths on the life insurance industry—and on policyholders. A recent panel discussion using actuarial data estimated that if the current pandemic were to reach death rates equal to 1918—clearly a worst-case scenario now that vaccines are widely available—the increased insurance payouts would total $117 billion.  A lower estimate, which is more in line with the existing data on coronavirus morbidity, would put that figure at $20 billion.  In either case, the government-mandated reserves (money basically held in escrow to pay out to policyholders) of 70% of the total death benefit face amounts is more than sufficient to cover even the higher of these additional costs.

Another impact that can be overlooked in this equation is that life insurance sales have declined during the pandemic year. This happened in part due to the slowdown throughout the economy and also in part due to the fact that life insurance agents were forced to sell remotely rather than face-to-face.  But, at the same time, fewer people with existing life insurance are cancelling their contracts or declining to pay premiums—almost certainly because the risk of dying has increased.

The full impact on the life insurance industry won’t be known for another few months, but you can get a sense of it by looking at the decline in stock prices of the major life insurance companies (see chart). The blue line at the top is the S&P 500 index, which took a big hit in March of 2020 and has largely recovered since.  The insurance companies, which were expected to be among the biggest losers as people realized the scope and severity of the pandemic, saw their stock values decline even more, but have since recovered—albeit at a lower level.

The first thing that people who currently have a life policy should know is that their policies will cover them if they pass away due to COVID-19, because life insurance companies are not allowed to change the terms of coverage or the stipulated premiums for policies that are already in force.  A more interesting question is whether rates will become more expensive in the future.  It is probable that people who have survived a coronavirus infection will have to disclose this on their future policy applications and may have to pay higher rates, due to the possibility of prolonged health effects. 

Premium Futures

A number of insurance companies are following the lead of other industries and offering grace periods on premiums for people who have suffered economic hardship as a result of the pandemic.  People who have group coverage through their employer with MetLife, for example, can continue to receive coverage for 12 months after they are furloughed or laid off, provided they keep paying the premiums.  Northwestern Mutual allows customers to suspend their premium payments for 90 days due to economic hardship and still remain covered, while MassMutual has gone so far as to offer free three-year term policies to people in some of the riskiest corners of the economy: frontline workers such as in-hospital personnel and first responders.

If you are concerned about the lingering effects of the pandemic on your insurance coverage, your investments, or any other aspect of your financial plan, we can provide research-based answers. Please contact us to schedule a time to talk things over.

We are accustomed to regular reports on the rate of inflation from the US Department of Labor. Inflation, measured by the amount of increase in the cost of commonly purchased goods and services as measured by the Consumer Price Index (CPI), has been running at a relatively low level for a number of years now. In fact, we finished 2020 with the CPI in the 1.4-1.6% range, well within what the Federal Reserve considers a manageable level of inflation for a recovering economy. Lately, there has been more talk of rising inflation, as the post-COVID economy heats up.

For many months inflation stayed persistently low. This has surprised many, given the enormous amounts of money that have been pumped into the economy since the Great Recession and especially over the last pandemic year.

Normally, when a larger money supply is chasing the same or a lower amount of goods and services, we would expect the cost of those goods and services to increase, due to the law of supply and demand. But despite the dramatic increase in the monetary supply, inflation remained tame for quite some time, in the view of the Fed.

Part of the answer may be that we were looking in the wrong place for inflation. Rather than measuring it by increases in the CPI, perhaps costs were increasing in other areas that aren’t included in the CPI: home purchases and investment income.

US housing prices, in the aggregate, rose 8.4% last year, and median listing prices for houses on the market were up 14.4%—two numbers that would be considered highly inflationary.  And if we are looking for the pain caused by inflation, then you can point to the housing affordability crisis that is emerging in 2021. But the cost of purchasing a home, unlike rent, is not factored into the CPI, because when you buy a home you are acquiring an asset, not a consumable good or service.

The cost of acquiring income from an investment portfolio provides an even more dramatic example. When you consider that high stock prices reduce the value of dividends proportionately and low bond rates make interest income more expensive, the cost to “buy” $1,000 a year of income in the investment markets has risen considerably. Historically, if you invested $25,000 in a portfolio evenly divided between stocks and bonds, that portfolio would generate $1,000 a year of income. Today, to achieve that same amount of income from a 50/50 portfolio, you would need to invest roughly $80,000.

But the economic winds appear to be shifting. While real estate and the cost of acquiring investment income, as described above, remain at historically high levels, the rest of the economy appears to be showing signs of entering a more inflationary environment. The Fed, until recently, insisted that this trend was “transitory” and that inflation was unlikely to rise to unmanageable levels. But recent comments may indicate a less sanguine view about inflation. A few days ago, Fed chair Jerome Powell conceded that inflation was running “higher than we expected and a little bit more persistent.” He also insisted that the Fed would do what was necessary—including higher interest rates—to keep inflation in check. Talk of higher rates, in turn, tends to roil the financial markets, as this is seen as making it more expensive for businesses to operate, thus depressing stock prices. And, in fact, in recent weeks, most of the down days in the markets have been related to perceptions of rising inflation and the prospect of Fed tightening.

As fiduciary wealth advisors, we provide research-based, market-tested advice for navigating the economic environment and mitigating risk. If you have questions about how inflation could be affecting your portfolio or your plans for retirement, click here contact us to schedule an appointment. We would value the opportunity to help you find answers.

One aspect of the COVID-19 pandemic that few seem to be talking (or writing) about is the impact of those hundreds of thousands of COVID deaths on the life insurance industry—and on policyholders. A recent panel discussion using actuarial data estimated that if the current pandemic were to reach death rates equal to 1918—clearly a worst-case scenario now that vaccines are widely available—the increased insurance payouts would total $117 billion.  A lower estimate, which is more in line with the existing data on coronavirus morbidity, would put that figure at $20 billion.  In either case, the government-mandated reserves (money basically held in escrow to pay out to policyholders) of 70% of the total death benefit face amounts is more than sufficient to cover even the higher of these additional costs.

Another impact that can be overlooked in this equation is that life insurance sales have declined during the pandemic year. This happened in part due to the slowdown throughout the economy and also in part due to the fact that life insurance agents were forced to sell remotely rather than face-to-face.  But, at the same time, fewer people with existing life insurance are cancelling their contracts or declining to pay premiums—almost certainly because the risk of dying has increased.

The full impact on the life insurance industry won’t be known for another few months, but you can get a sense of it by looking at the decline in stock prices of the major life insurance companies (see chart). The blue line at the top is the S&P 500 index, which took a big hit in March of 2020 and has largely recovered since.  The insurance companies, which were expected to be among the biggest losers as people realized the scope and severity of the pandemic, saw their stock values decline even more, but have since recovered—albeit at a lower level.

The first thing that people who currently have a life policy should know is that their policies will cover them if they pass away due to COVID-19, because life insurance companies are not allowed to change the terms of coverage or the stipulated premiums for policies that are already in force.  A more interesting question is whether rates will become more expensive in the future.  It is probable that people who have survived a coronavirus infection will have to disclose this on their future policy applications and may have to pay higher rates, due to the possibility of prolonged health effects. 

Premium Futures

A number of insurance companies are following the lead of other industries and offering grace periods on premiums for people who have suffered economic hardship as a result of the pandemic.  People who have group coverage through their employer with MetLife, for example, can continue to receive coverage for 12 months after they are furloughed or laid off, provided they keep paying the premiums.  Northwestern Mutual allows customers to suspend their premium payments for 90 days due to economic hardship and still remain covered, while MassMutual has gone so far as to offer free three-year term policies to people in some of the riskiest corners of the economy: frontline workers such as in-hospital personnel and first responders.

If you are concerned about the lingering effects of the pandemic on your insurance coverage, your investments, or any other aspect of your financial plan, we can provide research-based answers. Please contact us to schedule a time to talk things over.

As everyone knows, the pandemic lockdown in spring 2020 shuttered economies around the world, sending markets into a tailspin and creating widespread anxiety as people began to fall ill from the disease and health agencies scrambled to find answers. Since then, with the advent of vaccines and other public health measures, the world has slowly returned to something approaching “pre-pandemic normal,” though concerns remain, especially with the current rise of the delta variant and other mutations of the coronavirus that causes the disease.

A Good Recovery

How has the US economy performed during the recovery period, as compared with that of the Eurozone?  In the first quarter of 2021, at roughly the same time as the vaccine rollout, US gross domestic product (GDP) grew at an annual rate of 6.4%, which followed a 4.3% growth rate in the last quarter of 2020. By contrast, the GDP in the Eurozone shrank by 0.6% during the first quarter of the year.

Since then, as we moved into the summer and widespread easing of lockdown measures in the US, domestic GDP appears to have responded with a robust growth rate of 6.5%, though this is an advance measurement, as final figures for July are still being tabulated by the US Bureau of Economic Analysis (bea.gov). At the same time, the Eurozone presented evidence of a return to growth mode, moving out of contraction and expanding at a rate of about 2%. From the lows of the 2020 lockdown, this represents an improvement in the European economy of almost 14%.

How about employment? By the end of the first quarter of 2021, unemployment in the US stood at 6%, compared with the pre-pandemic low of 3.5% unemployment in February 2020, just before the lockdowns. By the end of Q2 2021, the rate stood at about 5.4%, greatly improved from the double-digit highs during the lockdown, but still above pre-pandemic levels. In the Eurozone, meanwhile, unemployment stood at 8.1% at the end of the first quarter of 2021, and since then has improved slightly, to 7.7%.

The Way Back

The US economy seems to be leading the world back toward recovery. Of course, as always, uncertainties remain. The current surge of the delta variant is still worrisome, because if infection, hospitalization, and death rates increase to alarming levels, businesses, consumers, and states will likely begin to consider more drastic measures in order to curb the spread and conserve space in hospitals so that the most critically ill can receive adequate care. One encouraging trend, however, is that more individuals are making the personal decision to receive the vaccine. As the percentage of COVID-resistant individuals in the population increases, the less we will need to be concerned about rising infection rates or a return to the stringent measures of early 2020. That will be a good thing for everybody.

As professional, fiduciary wealth managers and financial advisors, we stay abreast of current developments and the latest financial research in order to provide our clients with the facts and recommendations they need to create robust financial plans for the future. To read our recent article about investments for long-term returns, click here.