Economy having harder time rebooting than expected in the Spring 2021. Economy feels both too hot and too cold.

Shifts, Ambiguities & Anomalies Common in Economic Data

The mid-2021 economy continues to reflect our everyday lives.  One moment, the pandemic is “behind” us and we are told we can mingle with our families and friends without masks…another moment, the pandemic is resurging and we are told to put our masks back on and socially distance.

One moment, we are enjoying higher incomes…another moment, we are facing higher prices and shortages that outstrip pay gains.  One moment, we are seeing near historic job openings…another moment, the share of the population working remains far below pre-pandemic levels.  One moment, we’re seeing huge gains in GDP growth…another moment, we’re seeing markets priced at levels that suggest huge risks and sluggish growth in the coming years.

Unprecedented Pandemic Shock Reverberating in Economy

Karen Dynan, a Harvard economist and former official at both the Federal Reserve and the Treasury, said, “I think we should have expected there to be frictions in getting the economy reopened after this unprecedented (pandemic) shock.  We’ve seen serious frictions, and it’s totally reasonable to expect those frictions to continue.”

Just as there has been a huge mismatch of supply and demand within the housing industry, there has been a huge mismatch between the economy-wide demand for goods and services and the supply of those goods and services.

It simply is not clear how long it will take to increase the production of goods and services to fulfill seemingly unquenchable demand.  Just think about the shortages of housing and lumber and extrapolate from there to the shortages of microchips, chemical products, machinery, electrical products, appliances, furniture, etc.

Inflation Bites Workers

During each of the first six months of 2021, average hourly earnings have risen slower that the Consumer Price Index.  In other words, workers are gaining higher wages while simultaneously having to pay more for what they buy.

Even though some things like lumber prices and used car prices are starting to stabilize, other things like rent and labor costs are increasing…the result  being that many of these higher costs are being passed along to consumers.

Great Uncertainty Hangs Over Economy

Will the Delta variant of the coronavirus cause yet another “disruption” in parts of our own country and parts of the world where fewer people are willing and/or able to be vaccinated?

How long can the American economy feel simultaneously too hot and too cold?

According to The New York Times, “…until the economy can find a new equilibrium of prices, wages, output and demand, things aren’t going to feel just right.”

Thanks to The New York Times.

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