Life is getting back to normal
But Thanksgiving will be more expensive this year.
Traveling over the river and through the woods to celebrate Thanksgiving at Grandmother’s house will be more crowded and expensive than last year. But at least we’re getting out of the house and visiting with distant family and friends, some of whom we may not have seen in person in two years’ time.
Remember that this time last year, with vaccines not yet available, the Center for Disease Control and Prevention (CDC) urged Americans not to travel for Thanksgiving and instead to celebrate only with members of our immediate households. Mask-wearing, frequent hand-washing and outdoor dining (or plenty of open windows when indoors) was the rule. Gatherings were limited to 10 people or less, and hugs, kisses and handshakes discouraged. What a difference a year makes, as we grind back toward normal.
Thanksgiving travel forecast—crowded The American Automobile Association (AAA) predicts that 53.4 million people will travel at least 50 miles away from their homes over the extended Thanksgiving holiday weekend by car, plane, train, bus or cruise ship, up 13% from 2020. That would be the highest single-year increase since 2005. It also would be around 5% of Thanksgiving travel in 2019, a near-record year.
The Transportation Security Administration (TSA) expects to screen about 20 million passengers at airports in the 10-day period that began last Friday. Some two million passed through TSA checkpoints last Saturday alone, double the number from the Saturday before Thanksgiving last year. In 2019, by comparison, a record 26 million passengers and crew flew in the 11-day period around the holiday. The TSA recommends passengers arrive two hours before domestic and three hours before international flights. Masking is mandatory, alcohol is no longer available on planes due to unruly passenger behavior and people should bring food from home, as many airport stores and restaurants remain closed.
AAA predicts that 48.3 million more people will travel by car this Thanksgiving, a 9% increase over last year, though still 3% below 2019’s robust levels.
Operation Warp Speed was a huge success In many ways, we’re in a lot better shape today than we were a year ago. We put four Covid vaccines onto the global market (Pfizer, Moderna, Johnson & Johnson and AstraZenaca) in only nine months last year, a process that historically takes the pharmaceutical industry five to 10 years. While no vaccines were available last Thanksgiving, the number of jabs per day hit 3.5 million by April 2021. True, the daily pace of vaccination declined 85% over the past seven months, but we’ve still administered 450 million total doses here in the U.S. through last week, and nearly 195 million (almost 60%) of Americans are now fully vaccinated.
We also have booster shots for adults, vaccine availability for everyone five years of age and older and antiviral treatments for those who get sick. Tragically, 770,000 Americans have died over the past two years due to Covid, but the health-care situation is a lot brighter today than it was before last Thanksgiving. As a result, we believe that the fifth-wave surge in infections, hospitalizations and deaths that began here in the U.S. a month ago may not be as bad as the sharp delta variant surge we experienced in July and August.
Dinner will be more expensive Due to supply-chain shortages, a surge in inflationary pressures and a spike in consumer demand, Thanksgiving dinner with all the trimmings will be costlier this year. According to the American Farm Bureau Federation, we can expect to pay 14% more overall, with the price of turkey swelling 24% and frozen pie crusts up 20%.
It does not appear food inflation is temporary. Last month, the Biden administration increased food stamp benefits 30%, the largest year-over-year increase in the history of the Supplemental Nutrition Assistance Program (SNAP). It also expanded the program to include 42 million Americans, so roughly one in eight people now qualify for food stamps, with no restrictions on how they can spend their monthly benefit.
Driving will be more expensive Over the past year, natural gas prices have more than tripled, crude oil has surged around 150% to a recent peak of $85 per barrel and the national average price of unleaded gas at the pumps has risen more than 60% to $3.42 per gallon, a 7-year high. Some gas stations in California are charging more than $6 per gallon. It not only will be more expensive to drive to Grandma’s; we will want to wear sweaters when we get there.
Why are prices so high? We’ve shot ourselves in the foot with a series of questionable policy decisions over the past 12 months. When President Biden took office in January, he shut the Keystone XL pipeline and banned fracking on federal land and oil drilling in Alaska. Biden then accelerated our transition to electric vehicles (EV’s) for environmental reasons, prompting GM and Ford to announce that half their auto production will be EV’s by the end of this decade. With production for combustion-engine vehicles declining, major oil companies such as Exxon-Mobil and Chevron announced reductions in their exploration and production activities, diverting 15% or so from this year’s drilling budget to accelerate their development of sustainable energy (such as solar, wind, hydro and geothermal).
Consequently, the U.S. reduced its overall energy production from 13 million barrels per day in 2020 (when we were the world’s largest energy producer) by 15% to 11 million, ceding our market share to OPEC+ monoliths Saudi Arabia and Russia. When the global re-opening from the pandemic caused energy demand to soar, market prices went vertical because the world’s largest marginal energy producer voluntarily reduced production by 15%.
Critics suggest this is exactly what the Biden administration had hoped for, narrowing the price between cheaper, dirtier fossil fuels and more expensive cleaner sustainable energy. But the angry backlash from consumers due to the jump in energy inflation has the administration on its heels, and it is implementing three corrective actions. First, Biden has directed the Federal Trade Commission to investigate illegal price gouging. Next, he asked Russia and Saudi Arabia to pump more oil to bring prices down. Finally, this morning he authorized the release of 32 million barrels of crude oil from our Strategic Petroleum Reserve, in addition to the 18 million barrels already slated for sale by Congress to raise funds for their spending plans.
The Strategic Petroleum Reserve is a series of underground salt caverns in Texas and Louisiana that hold about 750 million barrels of crude oil when full. The government created it in 1975 after the Arab oil embargo to provide an emergency energy stockpile. The reserve currently holds about 606 million barrels, enough oil to meet U.S. demand for about a month.
But Mike Rothman, an energy expert from Cornerstone Analytics, believes Biden’s decision fails to address our structural oil imbalance, and that oil and gas prices ultimately will rise as a result.
Powell re-appointed; Brainard promoted Yesterday, Biden nominated Federal Reserve Chair Jay Powell for a second term, and nominated Fed Governor Lael Brainard to be Vice Chair, when current Vice Chair Richard Clarida’s term expires at the end of January. Senate confirmation is required for both. These selections are in line with our thinking. But there are three more open seats on the Fed’s board. We think Biden will fill these with more dovish candidates. The question financial markets will need to address is whether Biden’s remake of the Fed will be sufficiently hawkish to combat inflation by withdrawing monetary policy accommodation in a timely fashion.
Happy Thanksgiving, everyone!