Read: U. The one potentially thorny problem the U. Higher inflation. All the demand for goods, services and labor is driving up the cost of virtually everything. The real threat is that businesses and consumers will begin to expect higher inflation in the long run and act accordingly. Companies will charge higher prices and workers will demand higher pay. The seeds of such a scenario have already been planted. A closely followed survey of consumer attitudes showed they expect inflation to surge in the year ahead to 4.
Read: Consumer sentiment slumps in May on inflation worries. In a worst-case scenario, the Fed could be forced to raise interest rates by next year and potentially short-circuit the economic recovery.
The parties that are expected to form Germany's next government plan to introduce legislation that would allow an "epidemic situation of national scope" declaration, in place since March , to expire at the end of the month.
Economic Preview The U. Just how bad is it? Last Updated: May 18, at p. ET First Published: May 15, at a. Unemployment in September was still at elevated levels 4. Economists reference changing worker priorities, leading to supply challenges rather than low demand for workers.
Virus fears could be keeping workers on the sidelines. Some workers may have retired, while elevated business formation in suggests others could be going into business for themselves. The Delta variant could also be inspiring workers to stay out of work. Workers who are on the job hunt might not have the skills that match up with available positions. Illustrating those factors is a shrinking labor pool, with 3.
Labor force participation in September also declined by , workers. Another primary factor: Individuals are reevaluating what they want out of work. The industries most fragile to the pandemic have the highest quit rates, starting with food service and accommodation 6.
Meanwhile, the highest percentage of job openings are also in leisure and hospitality A Bankrate poll from August found that more than half 55 percent of the labor force plan to look for new employment at some point over the next 12 months, with workers prioritizing flexible work arrangements such as remote work or adjustable hours, as well as higher pay and job security.
Average hourly earnings in September rose 4. Year-over-year consumer price increases have been at year highs for six straight months, rising by 5. Americans are also having to pay more for meat Even more high-frequency measures tell the same story. The median one-bedroom rent is up Meanwhile, the median sale price of U. Morgan Asset Management. That highlights the ultimate question when it comes to inflation: How long it will last. Consumers theoretically will work through all their pent-up demand and eventually spend all of the extra money that Congress awarded them through stimulus checks and fiscal stimulus.
Yet, supply chain bottlenecks are lingering longer than expected, as virus cases continue to shut down factories across the globe and worker shortages reduce production. Make no mistake: is going to be a record year for growth. Officials at the Federal Reserve are expecting that the financial system will grow 5.
That would be the fastest pace of growth since Even in , the economy is geared up for above-trend growth, surging 3. By sheer dollar amount, the U. That was in part thanks to record demand. Spending surged 12 percent, as consumers dined out, traveled and shopped again thanks to reopened businesses , vaccinations and leftover stimulus money.
Record federal spending has also helped prop up growth this year, rising by an annualized pace of 4. Fed officials have already downgraded their forecasts for the year to 5. However, continued low inflation puts a lid on long-term rates: In the baseline, we forecast the year Treasury yield to settle in around 3. Of course, interest rates are always the least certain part of any forecast: Any significant news could, and will, alter interest rates significantly.
That suggests that GDP could be pushed up quite a bit above capacity in assuming the entire amount is spent in one year , leading to shortages and, ultimately, higher inflation. Arguments over the amount of excess capacity in the economy have given way, however, to concerns about commodity prices and the apparent labor shortage. Neither of this provides a convincing argument that inflation will set in at an unacceptably high rate. Commodity prices are not, in fact, a good indicator of future consumer prices.
The idea that there is a labor shortage is inconsistent with the large number of unemployed. Whatever the reasons for this, there is plenty of room for hiring once businesses figure out how to reach out to workers. But even when labor markets are truly tight—as they were before the pandemic—risks of inflation are lower than many commentators think.
In the late s, and then again in the late s, the unemployment rate fell quite a bit below the level that economists thought was consistent with stable inflation. At other times, the unemployment rate was very high. Yet through it all, inflation remained within a narrow 1. That experience argues strongly that sustained inflation is unlikely. So far, the US economy has experienced inflation in a very narrow group of goods and services, mainly those in sectors directly affected by the pandemic.
Inflation requires that such price spikes stimulate higher prices in other sectors, and that the need to raise prices be built into the economy. The pandemic has wreaked havoc with business plans, and no area of business operations has been more chaotic than inventories. Could you find toilet paper last April? That was only the tip of the iceberg. Some businesses found themselves with warehouses filled with unsalable goods, while others wondered how to ever keep a stock of key parts vital to their operation.
The change in private inventories contributed to huge swings in GDP. In the first two quarters of , inventory drawdown subtracted about 1. And the impact is far from over: Inventories are likely to continue to play an outsized role in short-term economic outcomes over the next few years.
Inventories, when used successfully by businesses, create a buffer between shocks to production and demand—and they have been playing that role successfully. But that matters for future production, as well. Auto manufacturers and retailers will need to rebuild their stocks of cars, and that will keep production going in the future even if sales weaken. In fact, many economists consider the ratio of inventory stocks to final sales to be a signal about future business behavior.
If inventories are low, demand is likely to grow as businesses seek to replenish their inventories; if inventories are high, demand is likely to fall because businesses will use existing stocks rather than ordering new goods. In aggregate, the ratio of inventories to final sales in the second quarter, at 2.
But that hides some significant inventory imbalances. While auto inventories are low, inventories at clothing stores and general merchandise stores jumped in the second quarter. Thanks to Lester Gunnion , who played a key role in developing and producing this forecast. The Deloitte Global Economist Network is a diverse group of economists that produce relevant, interesting, and thought-provoking content for external and internal audiences.
The network's industry and economics expertise allow it to bring sophisticated analysis to complex, industry-based questions. Publications range from in-depth reports and thought leadership examining critical issues to executive briefs aimed at keeping Deloitte's top management and partners abreast of topical issues.
United States Economic Forecast has been saved. United States Economic Forecast has been removed. Please enable JavaScript to view the site. Viewing offline content Limited functionality available. Article 20 minute read 16 September United States Economic Forecast. Daniel Bachman United States. Email a customized link that shows your highlighted text. Copy a customized link that shows your highlighted text. Copy your highlighted text. Share by email. Get the Deloitte Insights app.
Share image. Or copy link Copy. Sectors Consumer spending The near-term outlook for consumer spending turns on two big questions: 1.
Will consumers spend down all those pandemic-era savings? When consumer services recover, what happens to durable goods? A host of factors combined to boost housing demand over the past year: Continued strong economic position of high-wage remote workers Growing expectations that remote work will persist after the pandemic Historically low mortgage rates Millennials moving into prime home-buying age 6 Residential investment weakened in Q2 but remains elevated and could receive a further boost in the short term.
Business investment By the second quarter of , business investment was slightly 1. Foreign trade Over the past few years, many analysts have begun to face the possibility of deglobalization.
Government Policy Over the next few months, federal budget policy will revolve around four questions. They are: Will the bipartisan infrastructure plan pass? Headlines describing a trillion-dollar plan were perhaps not as accurate as they might have been, because about half the money was already allocated. But it could improve the long-run performance of the US economy considerably. Speaker Nancy Pelosi intends on presenting the infrastructure bill together with the budget reconciliation bill for FY in the early fall.
Can the Democrats pass a budget reconciliation bill? Some moderate democrats are concerned about the amount of spending involved. If as seems likely the budget reconciliation bill is not passed by September 30, can both parties agree on a continuing resolution to keep the US government funded? The possibility of another government shutdown seems unlikely, but it could happen.
And finally, will Republicans be willing to vote for a continuing resolution that includes a hike in the debt ceiling?
The Democratic leadership decided to avoid the safe approach of including a hike in the debt ceiling in the reconciliation bill which is designed to pass without Republican votes. Instead, they intend on including the debt ceiling rise in a continuing resolution, or perhaps as a stand-alone bill. Labor markets The conversation about labor markets has switched—and fast. This explanation makes some sense, but there are reasons to doubt that it is the whole story or, perhaps, even the major part of the story.
However, anecdotal evidence is strong enough to suggest that the unemployment insurance supplement is contributing to the problem. But this will not be a problem in the future, as almost half of all states ended unemployment insurance early, and the entire program will end in September. Child care has prevented a significant number of people from reentering the labor force. The good news is that this problem is on its way to being solved, with summer camps and day care centers reopening this summer, and schools likely to fully reopen, in person, in the fall.
Delta, however, poses an additional risk; if child care disappears again, labor force growth will stall or even reverse. Health remains a concern for people who are at risk of COVID, particularly those who cannot be vaccinated due to a high risk of complications.
About half of the decline in the labor force is among people 55 years and older. Many of these people have probably retired, in the sense of expecting to remain permanently out of the labor force, but some can likely be enticed back with the right compensation packages and flexible working hours and conditions.
The inventory question The pandemic has wreaked havoc with business plans, and no area of business operations has been more chaotic than inventories.
Show less. Show more. Endnotes To be clear: Voltaire was being sarcastic.
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