Is the US economy too hot or too cold? Okay.

Here’s the mystery: what is both too hot and too cold? Answer: The US economy in the summer of 2021.

This is a common thread found in economic data. Changes in financial markets; anecdotes from businesses; and the experience of the general public, who at the same time enjoy higher incomes and face higher prices and shortages.

In the mid-2021 economy, employers are offering higher wages to attract scarce workers. Many airports and cars are lively. And next week’s GDP report will probably show blockbuster growth. It is also an economy where inflation outweighs the rise in wages for many workers. The proportion of the working population is well below pre-pandemic levels. The bond market is priced at a level that suggests a high risk of returning to low growth over the next few years.

In essence, the economy is having a harder time restarting itself than it would have been in the busy spring days when many Americans were vaccinated and their checking accounts were stimulated.

The Biden administration and the Federal Reserve Board are confident that a smooth transition to a prosperous economy can be achieved without frustratingly high inflation. But for that to happen, we need to resolve a major mismatch between the economy’s overall demand for goods and services and their supply. It’s not clear how long it will take.

Karen Dynan, an economist at Harvard University and a former Fed official, said, “I think we should have expected friction in resuming the economy after this unprecedented shock. “. “We have seen serious friction, and it is perfectly reasonable to expect those frictions to continue.”

Consumer demand for goods and increasingly services is very high as Americans use their accumulated savings, government stimulating payments and higher wages. Last month’s retail sales were up 20% from June 2019.

However, companies struggled to increase production to meet that demand than forecasters expected in the spring. This was especially true for cars where the shortage of microchips constrained production.

However, supply shortages are evident in all types of industries.The· Latest survey Manufacturers of the Institute for Supply Management are quoting complaints about the difficulty of meeting the demands of manufacturers of furniture, chemicals, machinery and electrical products.

It has created so much price inflation that it obscures whether rising wages are really making workers better. Average hourly wages in the private sector rose more slowly than the CPI in each of the first six months of the year.

Due to the unique situation of resuming after a pandemic, these numbers are likely to underestimate the salary increases experienced by typical workers, but the point is clear.

Much of this appears to be “temporary” inflationary pressures that are set to diminish, and in some cases reverse. The bottleneck is set for resolution. For example, timber prices have fallen sharply in recent weeks. Used car price Eventually it may be stable at a high level. However, due to the slow-moving effects, it could reduce the purchasing power of the dollar in the coming months.

According to the range of, rents are starting to rise sharply Data source.. And companies facing higher prices for supply and labor may still be in the early stages, but have not passed on those higher costs to consumers. The Producer Price Index, which tracks the cost of supplies and services purchased by companies, rose 1% in June, accelerating from April and May. This shows that inflation may still be affecting the economy as a whole.

“We call this a sign of stagflation,” said Paul Ashworth, chief US economist at Capital Economics, using a term that describes a combination of stagnant growth and inflation. “Actual growth isn’t weak, but not as strong as we thought. There was a lot of optimism, and now things are back a bit to Earth.”

The labor market is the clearest example of a market that is too hot and too cold at the same time.

Companies complain of labor shortages and offer all sorts of incentives to attract workers. Still, the unemployment rate is in recession, like 5.9 percent. And the percentage of adults in the workforce, whether working or looking for a job, was basically flat for months and failed to make clear progress to return to pre-pandemic levels. .. It was 63.3% in February 2020, but has bounced between 61.4% and 61.7% for over a year.

Individuals may make reasonable choices to prevent them from working. For example, an older worker may retire a few years earlier, or a family member may decide to earn one income instead of two. But overall, lower levels of labor force participation limit the productivity potential of the economy.

Hanging in all of them is great uncertainty about whether coronavirus delta variants will create a new wave of turmoil in commerce, both domestically and internationally, where vaccine availability is low. It is sex. That concern has helped to cause major fluctuations in global financial markets. Global financial markets are rising in ways that suggest they are similar to the slumping 2010s, rather than the roaring 2020s in the coming years.

In the first three months of this year, long-term bond yields skyrocketed Yield curve — Shows the difference between short-term and long-term interest rates — steep slopes. Both of these tend to be indicators that investors are expecting higher growth rates in the future.

It has reversed Last few weeks.. Treasury yields for 10 years on Tuesday were 1.22%, down from the recent high of 1.75% at the end of March.

Where is the US economy that is too hot and too cold? Much work has been done to help the economy resume, and there is no shortage of demand from Americans who are flushing. But things won’t feel right until the economy finds a new equilibrium in price, wages, output and demand.

Is the US economy too hot or too cold? Okay.

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