Labor Day weekend is a busy time in America. It’s the unofficial end to Summer. The 3-day weekend is usually filled with barbecues, trips to the Mountains, to the Lakes and to the Beach. This Labor Day weekend is going to be quite different than the many years passed, for a variety of reasons. It is, remember, 2021.
Labor Day became an American Federal Holiday in 1894. In the late 19th century, during the Industrial Revolution, labor issues were abound. Long hours, low pay and dangerous conditions topped the list. American workers wanted more money, better working conditions, as well as recognition. Unions grew to represent the labor force. Labor now had a loud voice. Employers were on notice. Money and better conditions were not easily achievable. So Labor suggested a holiday. Corporate America and Congress bought in. The first Monday in September was selected to honor America’s labor force. Strategically, the last weekend before kids went back to school created a 3-day, family-oriented holiday. It was a big boost to the Economy. Hotels, restaurants and stores celebrated this new holiday too. 1894 was also the year that The Coca-Cola Company started bottling its new refreshing beverage. Thirsts were quenched across the country. Summer went out with a bang.
Labor Day weekend has become unpredictable for travel in the 21st century. Beyond the pandemic, schools start earlier and earlier. That has kept people closer to home. AAA stopped its formal travel forecast for the busy Labor Day weekend. It just got too hard to estimate. The AAA report was something we used to study closely to anticipate economic activity. One thing remains a constant: That holiday traffic congestion Friday afternoon from coast to coast.
Things are not quite back to normal yet. Last-minute flexibility seems to be a theme this year. A recent TripAdvisor survey shows a third of Americans have plans to travel over the holiday weekend. A whopping 86% of those surveyed plan to stay in the US. It also indicated that 22% were still undecided. 43 Million Americans are expected to hit the road this weekend. That would actually come slightly short of Labor Day weekend 2020 and a 10% decline compared to 2019. Another thing we’re hearing, expect many to make this more than a holiday weekend. People are likely to extend their trips with the increasing flexibility of remote work.
The costs of driving are up. Gas prices have climbed. The average price per gallon across the country is $3.18. That’s about the same level it was on the 4th of July, but it’s over $1 higher than Labor Day weekend 2020. For those of us in California, we know full well that the price at the pump is much higher than average.
Americans are still not back to flying the friendly skies at pre-Covid levels. Air traffic is expected to be just 66% of Labor Day weekend 2019. Over half of Americans surveyed have postponed or canceled trips to areas experiencing major virus outbreaks. The high-frequency data that we study is slowing. The number of passengers going through airport security has shrunk. Dining out and hotel reservations have too. People have grown more cautious.
For the people that are flying, they seem to be flying far. The Hawaiian Islands have 3 of the top 5 expected Labor Day weekend destinations. The busiest airports this weekend are expected to be Atlanta, Chicago O’Hare and LAX. Flights have been canceled from New Orleans to New Jersey. Tahoe and the Gulf Coast will see far fewer crowds than normal. Fires and hurricanes are clearly factoring into these expectations. There’s a great deal of stress going around.
Consumer sentiment fell sharply in August. It declined 13% from July. This kind of drop in sentiment is very rare with the Stock market near all-time highs. That is amongst the largest monthly declines ever observed by the University of Michigan, which oversees the report. That prestigious university in Ann Arbor has been tracking consumer behavior since the 1940s. It’s important because Consumer Spending accounts for roughly 70% of the US economic output. When the American Consumer is cautious, they tend to tighten their wallets. Economic estimates have officially declined. A month ago, IHS Markit was predicting 7.1% annualized growth for Q3. It’s been revised down to 4.7%. The slowdown has been largely attributed to the Delta variant and the ongoing supply chain delays.
In an irony that coincides with Labor Day, the enhanced pandemic unemployment benefits will be coming to an end this weekend. The extra assistance, which helped out-of-work Americans, was created by the CARES Act in response to the pandemic in the Spring of 2020. That included weekly bonus payments, which were raised by $600 per week and then lowered to $300 week. The long-term unemployed also collected Federally financed weeks of benefits when state aid was depleted. In many cases, Americans made more money by not working. That’s an 18-month Labor Day. That is not a sustainable solution.
Speaking of Labor: Just 235K jobs were created last month. That was well below the 725K estimate. It is a massive drop from the 1 Million added in July. Bad news is apparently good news now. Stocks like the results with the implication that the Fed will stay supportive for longer. The taper could be pushed out. But yields are rising, indicating the Bond Market isn’t so sure. Perhaps the plateauing in virus cases in the South is driving the Bond Market thinking. But there’s a real risk of stagflation, which is a combination of rising inflation and slowing growth. The Fed seems stuck.
The thing is, there’s really no historical playbook that the Fed is using. Most of what they’ve done has no precedent in hopes to combat the effects of Covid. The Fed went big in 2020, and stayed big as the Economy recovered. The Stock Market loves it. Housing prices skyrocketed. Asset prices inflated. The $794 Billion CARES Act spending during the pandemic does not compare to the $128 Billion in unemployment benefits provided in 2009. That was the year which unemployment peaked during the Great Recession. Back in 2009, only 14.5 Million Americans collected at least one benefit payment. During the pandemic, more than 46 Million have, making the difference 3X. There’s really no precedent in any of this.
The Market reflects the more sluggish activity. The Stock Market keeps hitting fresh, all-time highs, but the price action below the surface has been gut-wrenching. The reopening of America has slowed in the face of Delta. The reopening trade reversed hard too. Airline, Hotel and Restaurant stocks; Leaders in the Spring and early Summer have reversed hard. They’re more economically sensitive. Covid crushed them in 2020. They’re getting hurt again. So money has flowed out of those economically cyclical industries and back into Growth. Tech has led the resurgence. Growth is going to be hard to find again as the recovery rate peaks. Investors are willing to pay up for the secular growers, as long as rates stay low. Interest rates remain low, but inflation is on the rise. The result is negative real rates. That’s good for what are considered long-duration assets. The price of Metals is jumping. High-Quality Growth stocks are jumping. The Tech Titans have again taken charge.
Then there’s this: The S&P was up 20% thru August. That has only happened 5 other times in the last 7 decades. Stating the obvious, it is not unheard of. But it’s pretty darn rare. Looking at the results for the ensuing September: Up twice and down 3 times. September is historically the worst month for stocks. Something else to be mindful of, amongst those strong starts was 1987, which saw the S&P up a whopping 36% thru August. You might recall it had a lot of trouble afterwards. We don’t see anything like a repeat of 1987 ahead. But we are always mindful of overbought conditions and the need for corrections. There still hasn’t been even a 5% decline this year. That’s a rarity too, 2017 was the last time we had a year without a 5% pull-back, and before that, you had to go all the way back to 1995!
Enjoy the 3-Day Labor Day weekend. Labor Day is the unofficial end of Summer. September is here. Kids are back in school. Adults are back at work. The pandemic has certainly changed the landscape. Back at work doesn’t mean back to the office anymore. But September always launches the mad dash to year-end. It is setting up to be a September to remember.
We’ll be back, dark and early on Tuesday. We’re ready for whatever comes our way.
Mike
