The record-setting U.S. economy is here: morning brief

Yahoo Finance’s Myles Udland breaks down the surge in economic activity this year and what investors can expect in the latter half of 2021.

Video Transcript

- But we do start, though, with the economy and the Morning Brief. This morning, Myles wrote about what's going on with the recent economic data-- in particular, that services number that we got yesterday that was just a blowout number, Myles. And you noted how we've been waiting for this rotation in the economy. It's been evidenced in stocks and the rotation we've seen there into many of the companies that were most severely affected by the pandemic. Now we're seeing it in the economic data.

And if the economic data is this hot now, you ask, in this morning's brief, is 6%, for example, from that IMF forecast, is that too modest? All of these raised forecasts that we've been getting from Wall Street, are they too modest? And some of the data is still a little bit choppy. But when you see a number-- a services number like that, you really do have to sit up and take notice.

MYLES UDLAND: Yeah, I mean, it seems unlikely that the consensus is going to magically get too aggressive as it relates to forecasting economic growth. Forget about the first quarter of this year, which we were talking, 2% or 3% a couple of months ago. GDP now from the Atlanta Fed is at 6%. It would seem likely that that is actually going to get exceeded once we get through that first quarter reporting period. And at the end of April, we'll get that first look at Q1 GDP.

But as you head into Q2 and to Q3, again, the right tail of economic growth continues to be the place where there is opportunity to be more right than your peers. I mean, I have talked with Neil Dutta at Renaissance Macro about this idea for 13 months now, and really nothing about that theme has changed. There were various points all through last summer. We talked at length about what would happen when stimulus rolled off.

Well, the economy did better than expected. What would happen when we got that surge of cases into the fall and into the holiday season? Well, the economy continued to perform better than expected. And now, as we get into the spring where we have three million, three and a half million people per day getting vaccinated against COVID-19, we continue to see deaths fall, this coming as cases are flatlining-- and actually, you know, here in the tri-state area, they have been surging over the last couple of weeks-- we continue to see the economy outperform expectations.

Just a few moments ago, the JOLTS report, job openings for last month topping expectations by a couple hundred thousand. And so take all of this data together and if consensus right now is calling for, say, 8%, 10% GDP growth into Q2 and into Q3, that all seems conservative. I mean, we continue to track in the Morning Brief economists chasing this data higher, trying to figure out the point at which we stop seeing upside surprises in the economy.

Maybe we look back and say that it was pulled forward. Maybe we were too conservative or Wall Street was too conservative in believing that it would take this summer to get these surges underway when, really, the economy reopened fully in the spring-- kind of against maybe some CDC guidance. But right now, again, we continue that trend that we have seen for many months, a couple of quarters now, of the economy, again, on the right side of that distribution. So that is the better-than-expected side, if you kind of see the bell curve in your mind, be the place where the action has really been at for forecasters.

- Myles, this hot flow of data, what does this mean for Fed policy, you think?

MYLES UDLAND: Well, I don't really think-- I think for Fed policy, it probably doesn't mean anything, honestly. Jay Powell has been very clear so far. And if we take him at his word, which I am inclined to do. I know not all Fed watchers are inclined to do that. But if we take him at his word, the Fed is going to look through a lot of this data.

Deep tease for tomorrow's Morning Brief, however-- the stock market may not. And I think this really hot period of economic data may be saying something a little bit different for the market, specifically based on some other periods where we've seen these specific data sets, the ISM data we're referencing specifically here, kind of crescendo to these record levels.

The next three months, six months for the market have been just OK. Over the long term, as we know, stocks usually go up. And we can have that whole conversation another time. But you know, I think it really opens a window into that idea we've discussed here, which is maybe what's great for America, what's good for us in our daily lives, is maybe not necessarily so positive on a short-term basis for financial markets.