It’s difficult to believe that we’re already heading into the third quarter of the year. It has been a tough year and a quarter for most, but in the U.S., we’re beginning to emerge from the dark clouds of the pandemic. The scars of lost time and lost loved ones won’t heal, but there are some things to look forward to as we head into the second half of 2021. More people are attending events, seeing family and friends, planning trips, and catching up on lost time.
As far as the economy, the recovery is moving along, with GDP expected to recover to pre pandemic levels in 2021. However, the jobs numbers are still lagging what we saw before COVID. There are 7.6 million fewer Americans that have jobs now than pre-pandemic. The weekly unemployment claims have stayed relatively steady the past few weeks, and the most recent jobs reports have been disappointing when compared to economists’ consensus expectations after a great March report. That said, The Fed raised GDP expectations for 2021. In March, they were expecting 6.5% for 2021, and now the expectation is 7%. They have raised expectations a few times this year, which suggests they believe the economy is recovering faster than expected despite the plateau of the labor market recovery.
Inflation has been higher than the central bank expected so far this year. Jay Powell said he feels it’s unlikely that we will return to 1970s-like inflation rates, but there is a lot of uncertainty as the economy opens up more and more. Fed officials are expecting 3.4% core inflation in 2021, more than a full percent higher than the 2% target. Much of the inflation concerns involve supply chain disruptions, namely in used cars, computer chips, the lack of people returning to the workforce, and various raw materials. Once those concerns are behind us, and pent-up demand is met, it is likely that some of the bigger price spikes may fade. That said, the Fed has raised inflation expectations because high prices have been more sticky than anticipated at the beginning of the year. Inflation is a real concern because it limits purchasing power – and sometimes profitability – as the workforce demands higher wages. While inflation has been larger than The Fed has expected, it’s important to remember that the inflation numbers appear larger because the year-over-year effect is bigger given that we saw some price drops in March and April of last year as demand for many goods faded. With the agreement of the new infrastructure bill, we may see even more government spending, but it isn’t clear how that will be funded. From the Wall Street Journal article, it sounds like it may be funded through multiple sources. It’s unclear what the effects of this will be long-term regarding inflation. That said, infrastructure spending typically has positive effects that are hard to quantify which is a reason Washington found a way to agree on the new bill. President Biden did say that he wouldn’t sign the bill if it was the only thing that comes to his desk – signaling an ultimatum if Democratic priorities aren’t also met – so it’s unknown what will actually come of this.
Overall, I think it’s encouraging what we’re seeing in the economy. We’ve hit a record number of job openings and workers are able to pick and choose what opportunities they want to take on. Although it makes it much more difficult to hire and retain employees, as we’ve seen at The Leaders Group, it is a good sign to see that employers are needing to increase capacity and bring on more people. Regarding the pandemic, because of increased vaccination and the progression to herd immunity, it no longer seems that strange to meet up with people without thinking about COVID. Although I realize (and the news is quick to remind us constantly) it’s premature to declare the pandemic over, life is starting to feel a lot more normal. I don’t think we’ll see the exact world we did in 2019, but I don’t necessarily believe that to be a bad thing.
Principal Financial Officer
 Omeokwe, A. (2021, June 4). Hiring Picked Up in May but Lagged Behind Broader Recovery. The Wall Street Journal. https://www.wsj.com/articles/may-jobs-report-unemployment-rate-2021-11622764467.
 Politi, J., & Smith, C. (2021, June 16). Fed signals first rate rise will come in 2023. Subscribe to read | Financial Times. https://www.ft.com/content/0bf83e29-5ee2-415e-9e03-0edb38218bf3.
 Kiernan, P. (2021, June 22). Fed’s Powell Plays Down Inflation Threat. The Wall Street Journal. https://www.wsj.com/articles/feds-powell-set-to-testify-before-lawmakers-on-pandemic-programs-11624370400?mod=article_inline.
 Dapena, K., & Santilli, P. (2021, June 22). Rising Inflation Looks Less Severe Using Pre-Pandemic Comparisons. The Wall Street Journal. https://www.wsj.com/articles/inflation-rates-fed-11624304034.
 Duehren, A., Peterson, K., & Siddiqui, S. (2021, June 24). Biden, Senators Agree to Roughly $1 Trillion Infrastructure Plan. The Wall Street Journal. https://www.wsj.com/articles/biden-senators-agree-to-roughly-1-trillion-infrastructure-plan-11624553972?mod=article_inline.
 Bartash, J. (2021, June 8). U.S. job openings hit record 9.3 million – but more people are quitting than ever. MarketWatch. https://www.marketwatch.com/story/u-s-job-opening-leap-to-record-9-3-million-but-hiring-lags-well-behind-11623161366.