As we close out the first half of the year, we know a couple of things. First, the U.S. economy is almost entirely reopened following the pandemic shutdown. Although we are not yet fully back, the healing process continues. The story for the rest of the year in the U.S. will be about managing the risks, staying open, and growing our economy. As we are largely past the pandemic, the challenge ahead will be keeping the progress going.
Outside the U.S. The situation is different in the rest of the world. Many countries are still struggling to contain the virus. Despite this fact, containment of the virus abroad has begun and progress has been made. The rest of the world has seen less progress than the U.S., but countries abroad will have upside potential throughout the rest of the year. The healing process has started and will continue.
Markets gains. Market action during the month reflected this state of affairs. On the whole, U.S. markets were up. Both the Nasdaq and S&P 500 were up significantly in June, and all three major U.S. indices (including the Dow) were up significantly year-to-date. Markets have hit multiple all-time highs this year even as they continued to move higher. We have seen the same thing abroad. Both developed and emerging markets were up for the second quarter and the year so far, although by less than the U.S. markets. The pandemic has done real damage worldwide, but we can also see that the healing has started.
A story of recovery. Looking back, the story of the year so far has been of recovery and healing. June marked the substantial completion of that process in the U.S. Our state economies are almost entirely reopened. July will mark the start of the next phase of the recovery, as the pandemic and economy move closer to normal.
Pandemic progress. Regarding the pandemic, the numbers have largely stopped getting better because case growth stabilized at the end of June and the start of July. Moreover, as more contagious variants spread throughout the U.S., we may be looking forward to new flare-ups of the virus in some locations. Another national wave of infections is unlikely, but areas with low vaccination rates could well face local health crises. Overall, the pandemic is likely to remain a risk across the country, although not for the country as a whole. The country can operate at the current levels of infections, and even somewhat higher, and will continue to do so. The pandemic will not go away, but it will be normalized over time just as the flu has been.
Economic progress. In general, economic conditions have improved significantly. But, as with the pandemic, the rate of improvement is likely to slow as we approach normal and the statistics get closer to pre-pandemic levels. Consumer confidence, for example, is now at or above the levels we saw before the pandemic started. But business confidence has pulled back from the peaks seen in recent months. This scenario reflects the replacement of optimism with realism, as our attention shifts from the end of the pandemic to the usual problems. News reports, for example, are now about inflation and supply chain problems, rather than pandemic improvements. This trend is a necessary part of our transition to normal. Nonetheless, it signals that improvement will be slower through July and the rest of the year.
Labor market. The one exception to the trend of slowing improvement is likely to be the labor market. While unemployment remains high, job growth is healthy and will probably remain so. As wages rise, more and more people will be drawn back into the labor market. That will help keep confidence and growth high. We will see slower growth, yes, but we will still see growth. Jobs will be one area where we can expect sustained improvements.
Growth ahead? Despite the general slowing of the economic improvement, there are reasons we could get faster growth. As the rest of the world catches up, foreign demand will help the U.S. economy. It seems very likely that we will get large amounts of federal infrastructure spending, which will serve as a tailwind. And the Fed remains committed to low interest rates, which will put a foundation under both growth and the financial markets. All these factors point to significant upside potential.
Looking back, in the first half of the year we saw the end—from an economic perspective—of the pandemic. In June, in particular, we started to move back to normal, as worries about the economy replaced worries about the pandemic. Although the economic worries are real, they are a sign that the country is moving back to normal. As such, we can now afford to worry about normal things.
Looking forward to July and the rest of the year, our normal will include some worries, but it will also include continued hiring and continued growth. Normal, here in the U.S., means more jobs, more growth, and higher markets. Not every month, or even every year, but over time. With June very likely marking the end of the economic effects of the pandemic, July should mark the start of getting back to normal. Expect the negative headlines, but welcome them as a sign that things are back to normal. We will be able to worry about things other than the pandemic. Even as the worrisome headlines hit, remember that the underlying trends remain positive. We are moving closer to normal every day.