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 employees in the U.S. working from home

Line chart of the percentage of working professionals that are working from home. It has decreased from nearly 60% in May 2020 to under 25% in August 2021.

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 11.00%, 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

Line chart of forecasted copper demand from electric vehicles as a percentage of total copper demand in transportation under three scenarios. Under the base case, the percentage is expected to reach about 56% by 2030.

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)

Line chart of U.S. Federal Government spending, actual and forecast. It shows fiscal spending increased after 2022.

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

Investing involves risks, including the potential loss of principal. Financial markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments. The information provided does not take into account the suitability, investment objectives, financial situation, or particular needs of any specific person.

All overviews and commentary are intended to be general in nature and for current interest. While helpful, these overviews are no substitute for professional tax, investment or legal advice. Clients and prospects should seek professional advice for their particular situation. Neither Manulife Investment Management, nor any of its affiliates or representatives (collectively “Manulife Investment Management”) is providing tax, investment or legal advice. 

This material is intended for the exclusive use of recipients in jurisdictions who are allowed to receive the material under their applicable law. The opinions expressed are those of the author(s) and are subject to change without notice. Our investment teams may hold different views and make different investment decisions. These opinions may not necessarily reflect the views of Manulife Investment Management. The information and/or analysis contained in this material has been compiled or arrived at from sources believed to be reliable, but Manulife Investment Management does not make any representation as to their accuracy, correctness, usefulness, or completeness and does not accept liability for any loss arising from the use of the information and/or analysis contained. The information in this material may contain projections or other forward-looking statements regarding future events, targets, management discipline, or other expectations, and is only current as of the date indicated. The information in this document, including statements concerning financial market trends, are based on current market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons. Manulife Investment Management disclaims any responsibility to update such information.

Manulife Investment Management shall not assume any liability or responsibility for any direct or indirect loss or damage or any other consequence of any person acting or not acting in reliance on the information contained here.  This material was prepared solely for informational purposes, does not constitute a recommendation, professional advice, an offer or an invitation by or on behalf of Manulife Investment Management to any person to buy or sell any security or adopt any investment approach, and is no indication of trading intent in any fund or account managed by Manulife Investment Management. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. Diversification or asset allocation does not guarantee a profit or protect against the risk of loss in any market. Unless otherwise specified, all data is sourced from Manulife Investment Management. Past performance does not guarantee future results.

A widespread health crisis such as a global pandemic could cause substantial market volatility, exchange-trading suspensions and closures, and affect portfolio performance. For example, the novel coronavirus disease (COVID-19) has resulted in significant disruptions to global business activity. The impact of a health crisis and other epidemics and pandemics that may arise in the future, could affect the global economy in ways that cannot necessarily be foreseen at the present time. A health crisis may exacerbate other pre-existing political, social and economic risks. Any such impact could adversely affect the portfolio’s performance, resulting in losses to your investment.

Manulife Investment Management

Manulife Investment Management is the global wealth and asset management segment of Manulife Financial Corporation (“Manulife”). We draw on more than a century of financial stewardship to partner with clients across our institutional, retail, and retirement businesses globally. Our specialist approach to money management includes the highly differentiated strategies of our fixed-income, specialized equity, multi-asset solutions, and private markets teams—along with access to specialized, unaffiliated asset managers from around the world through our multimanager model.

This material has not been reviewed by, is not registered with any securities or other regulatory authority, and may, where appropriate, be distributed by Manulife Investment Management and its subsidiaries and affiliates, which includes the John Hancock Investment Management brand and Hancock Natural Resource Group.

Manulife, Manulife Investment Management, Stylized M Design, and Manulife Investment Management & Stylized M Design are trademarks of The Manufacturers Life Insurance Company and are used by it, and by its affiliates under license.

1828026 

Frances Donald

Frances Donald, 

Global Chief Economist and Global Head of Macroeconomic Strategy, Multi-Asset Solutions Team, Manulife Investment Management

Manulife Investment Management

Read bio
Erica Camilleri

Erica Camilleri, 

Investment Analyst, Multi-Asset Solutions Team

Manulife Investment Management

Read bio