In the last few blogs, we’ve commented that pandemics haven’t changed the potential growth path of the economy. This graph shows GDP growth that began in the mid-1990s (+ 1.3% for the Atlanta Federation for the third quarter of 2021). The horizon shows the growth level of 2%. Note that the left side of the graph shows much higher growth than the right side. In the 1990s, growth ranged from 4% to 5%, and during the first decade of the century it ranged from 3% to 4%. However, after the Great Recession, the economy settled in a 2% growth mode, which lasted for 10 years before the pandemic began.
- 1 Pandemic impact
- 1.1 AlsoRead
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- 1.3 The PitchBook Economy
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This blog seeks to explore the impact of the pandemic, including its impact on inflation, whether those impacts are permanent, and how they affect short-term and long-term economic growth.
The biggest complaint of companies seems to be the lack of qualified applicants. It should be remembered that the pre-pandemic labor market was already tight (unemployment rate 3.5%) and such complaints were already a big problem.
- Throughout 2021, until early September, when the federal program ends, industries that require low-skilled / low-paying workers (leisure / hospitality, retail, etc.) are competing with the very generous federal unemployment subsidies. rice field. September employment data seemed to disappoint the market, but the survey week (the week of September 12) was too early at the beginning of the month and could show significant improvement due to the suspension of federal programs. I don’t think it was. We still believe that the October and November employment reports show significant job creation.
- We track continuous unemployment insurance claim (CC) data by state for several months, dividing the states into states that have opted out of the federal $ 300 weekly supplementary unemployment benefit (opt-out). .. It wasn’t (opt-in). As of mid-September, opt-ins reduced CC by -27% from May 15 levels, with the exception of CA (CC in early October was only -8.2% down from May 15 levels). However, opt-out reduced the number of CCs by -45%. However, since then, an 8 percentage point improvement has been seen in the opt-in state, which is in close agreement with the 9 percentage point decrease in the opt-out state. Others may disagree, but our conclusion is that these federal programs are curbing reemployment in opt-in states, and now that they are over, reemployment is accelerating. ..
- The graph shows that CC is rapidly approaching pre-pandemic levels with the end of a special federal unemployment program. (Compare the left and right sides of the graph.)
- The impact of the pandemic on the retirement of a significant number of employees, both those aged 65 and over and those approaching retirement, also affects the workforce. This contributes to the shortage of employees, as well as the shortage of women returning to reemployment. Due to distance learning (that is, school through Zoom), many women, especially those who could not work from home, left the workforce. Today, we hear that there is a shortage of employees in the childcare industry, and not all schools have returned to their pre-pandemic “normal.” This has prevented many young mothers from returning to the workforce. This seems to be an ongoing employment issue until the pandemic is behind us.
Labor shortages also stimulated non-residential fixed investment.
- Companies have responded to the shortage of labor applicants by investing in labor-saving technologies. As shown in the first graph below, unit labor costs have declined after the first surge in labor costs due to Covid-related work rules. While some of this surge on unit labor cost charts is due to basic effects, many of the surges on non-residential bond charts are due to companies trying to use technology on behalf of their employees. We believe that the continuation of the tight labor market will continue the upward trend in fixed investment (especially technology).
During the blockade, consumer spending shifted from services to commodities.
- We all know what happened to the leisure / hospitality and retail industry. Airlines, hotels, live entertainment venues, restaurants … In the first half of 2021, consumers spent on goods when there were frequent blockades or hesitations in service businesses, especially because the federal government was giving out money. During this time, high-priced products (such as automobiles) set records. Did it just drive consumption forward? That seems to be the case in the automotive industry, as sales have plummeted since then. However, it’s a good argument to blame inventory shortages (due to chip shortages) due to lower sales.
- The demand for goods has triggered a chain reaction. Demand grew rapidly. Meanwhile, supply was hampered by factory closures in manufacturing countries (mainly Asia), other Covid-related issues, and a lack of available transportation capacity. We have all read stories about the number of ships waiting to be unloaded at the port on the west coast. According to recent reports, the problem was exacerbated after the number of berthed vessels and unloading wait times were significantly reduced. To be fair, we need to consider seasonality. This is the time for retailers to order inventory for the next holiday spending season. Therefore, the number of ships waiting to be unloaded is increasing.
How much of the current inflation is “temporary” (pandemic-related) and how much is it due to other causes?
- Will consumers return to pre-pandemic product / service ratios? There could be a shiftback-we’ve already seen some of them (restaurants, airlines, hotels, casinos)-but probably not completely back. Many small businesses (such as restaurants) are completely closed, and consumers have spent huge amounts of money on home remodeling and 1.7 years to limit the consumption of services. Some of those new habits may be permanent. For example, many people are delighted to cook at home.
- Port backup issues and rising commodity transportation costs will continue to be issues until the private sector adjusts. Keep in mind that it may take months or years for the private sector to build ships and containers. Shipping companies’ profits have skyrocketed to record levels and will attract new capital investment in a capitalist economy. Therefore, prices are rising due to transportation costs, but I think the private sector will eventually solve the problem. Prices, on the other hand, can rise very high only before the consumer revolts by not buying (that is, high prices are high-priced treatments). This part of inflation appears to be “temporary.” The conclusion here is that supply chain-related inflation is not systematic. That is, it has no life in its own right and may stop or even partially reverse when the supply chain recovers.
- However, some are not “temporary”. The media does not distinguish between different sources of inflation, so when that is not all, the pandemic is unfairly blamed for all the rises in energy prices. Some of the causes of the first soaring energy prices, especially fuels, are certainly due to the port, transportation and transportation issues mentioned above. Therefore, there is a “temporary” factor here, especially in the price of gasoline in the pump. However, there is a very important factor in energy inflation elsewhere.