Get back to work: Three-minute macro

We question whether the bullish consensus view on services is correctly pricing in working professionals’ increasing return to the office. Meanwhile, the rise of electric vehicles may mean copper’s usefulness as an economic indicator could wane in the future. Finally, we’re cautious on President Biden’s infrastructure deal’s potential contribution to the U.S. economy. 


Can professionals returning to office drive demand?

August data out of the U.S. Bureau of Labor Statistics showed that just 24.6% of employees in the United States who are working in “management, professional, and related occupations” worked from home as of July 2021. This is in contrast to the 57.0% of these professionals who were working from home in May 2020 (when this data collection began). This category of worker consists of individuals working in computer and mathematical operations, engineering and architecture, finance, legal, social science, education, and healthcare professions. In essence, the groups it doesn’t include are individuals in occupations where remote working isn’t really possible.

This data might be surprising for most of our readers. However, it also indicates that 37.9% of employees in the finance and insurance industry are still working from home, which is the second-highest rate behind computer and math occupations, at 49.0%. While headlines appear to be laser focused on the financial services sector’s return to office as a catalyst to releasing pent-up demand, we’d highlight that these two job categories only account for 4.7% and 3.8% of the working population, respectively. In our minds, it’s hard to get excited about the pent-up demand generated by a combined 8.5% of the working population, especially given that a good portion of these sectors’ workforces are already at the office—not to mention that many of these workers will inevitably continue working from home on a part- or even full-time basis. While these facts are but a small piece of the puzzle, they could be a factor working against what is a very bullish consensus view on services.

Working professionals are returning to the office

Percentage of professional employeesin the U.S. working from home

Source: Bureau of Labor Statistics (BLS), Manulife Investment Management, as of August 31, 2021. Note that "professionals" include those in the BLS's "management, business and financial operations" and "professional and related" occupations. 

Will Dr. Copper retire?

On July 14, the European Commission presented the Fit for 55 package, which aims to reduce emissions by at least 55% by 2030 and net zero in 2050. Likewise, the EU also proposed tighter emissions targets for passenger cars by 2030 and to ban internal combustion engine car sales from 2035, a modest pull-forward of previous targets. This will likely result in more robust demand for electric vehicles (EVs) and the raw materials needed for them—notably, copper.

Currently, the transportation industry accounts for 12.0% of global copper demand while EVs comprise 2.6% of global car sales (in 2019). On average, an EV requires 3.8 times more copper than a traditional vehicle. At a 2.6% market share, demand for copper stemming from EVs as a proportion of copper demand from the wider transportation sector is 9.0%. In the chart below, we modeled out three scenarios: EV market share to total 20.0%, 25.0%, and 30.0% (bear, base, and bull cases, respectively) by 2030. In our base case and according to our estimates, demand for copper for EVs as a share of transportation copper demand would increase from 9.0% to about 56.0%, and would account for about 11.0% of aggregate global copper demand (from 1.0%, currently.)

If the structural shift from both policy changes and shifting consumer preferences increases EV’s share of global copper demand from 1.0% to 11.0%, what does that mean for copper’s correlation to the business cycle? Will copper still be a trusted gauge of economic health, and will Dr. Copper have the same predictability? Pair these changes with copper’s other green use cases, and it’s clear that copper demand will likely be even more tied to the environmental story. While we foresee copper demand growing given its environmental, social, and governance benefits, it’s also likely that copper demand could become less cyclical and less tied to industrial and electrical production, reducing its effectiveness as a gauge of the global economy. 

Green shift may increase copper's importance

Forecasted copper demand from electric vehicles as a percentage of total copper demand in transportation

Source: Manulife Investment Management, Macrobond, as of August 27, 2021. Note that forecasts are those of the global macroeconomic team. 

Can the infrastructure bill alleviate the fiscal cliff?

The U.S. Senate successfully passed a bipartisan infrastructure deal in August. Unfortunately, we don’t see this bill alleviating the stark fiscal cliff in 2022 and 2023. We highlight three key reasons why we don’t anticipate any major positive macro implications from this most recent fiscal bill:

  1. Size: The package is simply not large enough to offset the rolloff from the historic amounts of fiscal stimulus that were injected into the U.S. economy in 2020 and 2021. Fiscal stimulus contribution to real GDP growth was ~14% and ~8% alone in Q2 2020 and Q1 2021, respectively. Biden’s American Rescue Plan from Q1 2021 was $1.9 trillion (spread over 1 to 2 years)—the upcoming package of $550 billion (spread over ~10 years) pales in comparison.
  2. Scope: This package consists primarily of traditional/physical style infrastructure focused on transportation and utilities. Economic multipliers for this type of investment start small and build over time, typically 3 to 8 years. Imperatively, this type of stimulus doesn’t incorporate transfers such as the COVID-19 stimulus checks or child tax credits, where money hits bank accounts and can be immediately spent.
  3. Timing: Not only do the multipliers build over time for these types of projects, but the spending plans are expected to build from 2022 to 2026, with maximum outlays in 2026. Furthermore, these types of projects are prone to delays and it may take longer than expected for shovels to hit the ground, further pushing out the financial benefits.

Watch out for that fiscal cliff

U.S. federal government spending—actual and forecast ($U.S. billion)

Source: Oxford Economics, Manulife Investment Management, as of June 2021. Forecasts is that of the global macroeconomic team.