The Biden team is trying to set a low bar for the vaccine rollout and the economy. Don't let them fool you.
Drew Angerer/Getty Images
- The US economy is bouncing back. The vaccine rollout is getting better.
- The Biden administration wants you to think they're both disasters.
- But the administration is just trying to lower the bar for political reasons.
- Neil Dutta is head of economics at Renaissance Macro Research.
- This is an opinion column. The thoughts expressed are those of the author.
- Visit Business Insider's homepage for more stories.
It should come as no surprise when an incoming presidential administration lowers expectations to set itself up as the savior of the nation's ills.
Former President Trump often lamented how he "inherited a mess" from the Obama administration on everything from the economy to the Mideast and how "he alone can fix it." While slightly different in tone, the incoming Biden administration is no different in their intention, lowering expectations through the media for the economy and vaccine rollout.
The Biden team has made it seem as if the economy is slowing as they take office and the vaccine rollout is a total mess. But in both cases, the situation is better than is being portrayed in public.
For investors, this reality means that the odds are growing that the fiscal relief package President Biden ends up signing will be well short of his initial ask of $1.9 trillion.
An improving economy
US economic activity continues to defy consensus expectations. Popular economic surprise indicators - which measure the performance of high frequency data relative to consensus estimates - have been positive since the middle of 2020. According to the Federal Reserve Bank of Atlanta, GDP growth for the fourth quarter is tracking at a 7.5% annual rate, about three percentage points above the current Bloomberg News consensus of economists.
Read more: Here's why 2021 is going to be a great year for the economy
All signs point to an improving, not slowing economy. There are plenty of reasons for optimism, but the two most obvious are housing and manufacturing.
- In December, residential building permits jumped to a cycle high of 1.709 million SAAR. Building permits have long been considered a leading indicator of activity. So, when permits rise, residential construction follows. Once those homes are completed, families move in, supporting growth in spending on household items that drive the economy.
- Next, at home, inventories remain far below final demand. Bringing inventories in-line with sales will support manufacturing production. Moreover, global growth appears to have picked up. With the dollar softening, exports are poised to advance. Since most of what is exported is manufactured goods, the export boom will support US factories too. Indeed, the Markit Manufacturing PMI recently jumped to its best level since 2014.
Neil Dutta
These positive trends come in advance of a recently signed relief package. Indeed, there is some evidence that the latest round of economic impact payments is already being put to use. In short, the evidence that the US economy is slowing down as Biden assumes offices remains quite thin.
The COVID situation in the US is improving too
According to data from the COVID-19 Tracking Project, COVID-19 hospitalizations appear to have peaked on January 6, falling over 10% since.
Importantly, the reproductive rate of the virus - the average number of people who become infected by an infected person - appears to be declining. A reproductive rate above 1 indicates the virus is spreading. When the rate is below 1, the virus is retreating. Today, only 8 states are reporting a virus reproductive rate above 1 compared to 32 just two months ago. This gives us some confidence that case growth will continue moderating in the weeks ahead.
Neil Dutta
As case and hospitalizations are falling, the rate of vaccinations is picking up. Soon after the 2020 election, President Biden committed that his team will get "at least 100 million COVID vaccine shots into the arms of the American people in the first 100 days." This goal was lauded as "ambitious" by one popular outlet. Meanwhile, Operation Warp Speed, the Trump administration's plan to develop and distribute a vaccine has been described as "chaotic," coming in for a "crash landing," and akin to having no plan at all. Perhaps.
Then again, the current set-up has already been administering over one million doses per day. Importantly, the pace of shots into arms has already been picking up: the daily pace of shots has doubled since early January. Thus, at the current run-rate, the Biden goal hardly feels like a heavy lift.
Neil Dutta
The Biden administration must have realized this because the president on Monday announced that the new goal would be to get to 1.5 million doses per day. This is still relatively achievable, but at least reflects the already increasing rate of injections. Pfizer also recently announced that it plans to deliver US vaccine doses faster than expected.
In essence the expectation setting comes down to the Peter La Fleur strategy from the movie Dodgeball: "I found that if you have a goal, that you might not reach it. But if you don't have one, then you are never disappointed. And I gotta tell ya, it feels phenomenal!"
Much of this discussion brings up memories of the testing constraints earlier in the year. In the spring of 2020, as the pandemic was first spreading, getting a COVID-19 test was not an easy feat. The country was doing only a few hundred thousand per day. By the end of the summer, daily tests ran close one million per day. Supply chains have a way of meeting demand. That's how it will be with vaccinations.
After all, the pace has already doubled without much effort. Imagine what happens with additional monies to speed up pace as is being discussed in current fiscal negotiations.
Given the improvement, the fiscal aid need is probably not as big
In short, two things are happening simultaneously: the COVID situation in the US is improving and the US economy continues to strengthen. To some degree, the former helps reinforce the latter.
While President Biden's goals on vaccinations seem too low, it is welcome that he is not depending on it on his fiscal ask of Congress to meet these goals - $1.9 trillion is a large sum of money. As the weeks go on, and as the economy continues to recover with better news on the virus front, it's likely that the final price tag on the next round of COVID relief will come down sharply.
State and local government aid is a good example. The Biden ask is $350 billion even as state and local government revenues have already recovered their pre-pandemic peak!
It's all an expectations game and President Biden looks poised to preside over a bit more vaccine distribution than he expects and quite a bit less fiscal relief than he asked for.
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