Futurecast New Hampshire 2021
Previously published in Business New Hampshire Magazine.
We believe the prospects are bright for accelerating economic activity during 2021. New Hampshire and the national economy look poised for renewed consumer and corporate spending as a vaccine becomes widely distributed. Additional support should come from new fiscal initiatives and continued low interest rates. Quite possibly, New Hampshire may experience economic growth not seen in many decades. And, while financial markets have discounted much of the expected recovery, with corporate profits rising and ample liquidity provided by the Federal Reserve, we believe there may be additional equity market gains.
The pandemic’s impact on New Hampshire and our country is substantial, but uneven across different industries. Some businesses faced excruciating challenges, while others benefited from social changes. While initial fiscal spending targeted specific industries and companies, monetary support of low interest rates and credit market intervention has benefited many businesses. Consumers and businesses alike slowed their spending in 2020 and increased their savings rate. The scenario of pent up demand and extra cash to spend is a powerful formula that could result in unexpected demand for goods and services in 2021. For perspective, cash on corporate balance sheets has grown to over $2 trillion, more than double the reserves built up during the financial crisis. It is highly likely that some of the accumulated corporate cash will be deployed to update equipment, buy back stock, and increase dividends. Reducing cash on corporate balance sheets may also raise the return on equity and help improve earnings. Broadly speaking, corporate spending is likely to accelerate as the year progresses.
Workplace automation, digital technologies, and work from home trends have been accelerated by COVID-19. These activities will continue to advance and evolve in 2021, impacting consumer preferences, traffic patterns, commercial and residential real estate, hiring practices, and economic and tax policies – all of which should benefit New Hampshire industries. We believe that unemployment will drop dramatically here and across the country, particularly in the hospitality and travel industries, as they regain their health. Favorable resolution of the income tax dispute between New Hampshire residents working in Massachusetts and the Mass Department of Revenue could usher in a new era of real estate demand statewide. Work from home, combined with our favorable tax environment and highly rated quality of life, may turn the spotlight on New Hampshire as a preferred place to live, especially for more highly compensated professionals that now reside in Massachusetts or the tri-state area. As evidenced by the residential real estate boom that began in the spring of 2020, economic activity in New Hampshire is likely to remain on an upward slope.
New national policies around climate change and social equity may positively impact the financial markets as well as local industries in 2021. Business investment to decarbonize our economy and reduce greenhouse gases should accelerate later in the year. Expanding solar and wind generation, building infrastructure for electric vehicles, developing regenerative agriculture and aquaculture, and changing consumer preferences are some of the trends we believe are likely to develop. In the financial arena, equity market capital flows may broaden during 2021. We may see a shift in focus from large-cap tech companies toward smaller companies and those benefiting from an increased emphasis on sustainable business practices.
We are seeing that Environmental, Social, and Governance (ESG) criteria are increasingly important to investors. Recent data has shown that companies embracing these business practices tend to earn higher returns on their capital. And the median investment fund utilizing ESG research in their portfolio construction process has generated above average investment results. We believe that both public and private market investors will continue to seek investment opportunities that capitalize on sustainable business practices and that businesses in New Hampshire and across the country that implement such practices will be rewarded in 2021 and into the future. We look forward to the prospects of solid economic growth post COVID-19.