Companies scrambling to explain signs of overheating in the U.S. economy

The speed of the US rebound from the Covid-19 crisis has caused executives, investors and economists to scramble to explain whether labor shortages and price increases are short-term summer economic booms or longer-term dangerous inflation.

Some of the country’s largest companies praised the strength of the recovery in recent financial reports, but declined to predict whether rapid vaccination and large-scale fiscal stimulus will cause trouble for US companies.

Walmart CEO Doug McMillon warned this week: “The second half of the year may be more uncertain than normal.” Although he and his contemporaries pointed out that consumer spending Rising power and savings rates indicate that the possibility of repression continues and demand increases.

Manufacturer 3M was one of many companies that emphasized the “dramatic increase” in labor, freight and certain raw material costs last week, although the company said it has increased customer prices accordingly.

Some recent economic data has triggered some red flags, such as Consumer price, Although it is driven by factors that may be temporary. These include a sharp increase in airfare prices as Americans start to travel again, and higher demand for used cars due to a decline in new car production due to chip shortages.

unexpectedly Weak job creation Last month also covered up a more chaotic situation, which was due to the decline in employment in temporary jobs, transportation and storage, and manufacturing.

“Pandemic… cut into the market, pick certain industries, and destroy them like a hurricane [but] ADP chief economist Nela Richardson (Nela Richardson) said.

These differences are obvious in the company’s earnings. The sharp rise in timber prices has hurt home builders and DIY retailers, and clothing chains such as TJX have warned that a shortage of drivers may make freight costs “stubbornly high” throughout the year.

Gershon Distenfeld, co-head of fixed income at AllianceBernstein, said: “For a long time, it has been obvious that prices will soar this spring and summer. The question is not whether prices will rise in the short term, but whether they will continue.

Although there is a lot of evidence that there is a shortage of workers, companies such as Disney and Home Depot still express confidence that they can deploy employees to meet the recovery of consumer demand while also passing on higher costs to customers.

However, a combination of factors has made it more difficult to find a job, including higher unemployment benefits, childcare shortages, and some workers still worry about working while the virus is still spreading. This fact makes some employers pay more attention to the labor market. Tension. .

A franchisee of McDonald’s in Florida Make headlines Last month, the company offered a salary of $50 to anyone presenting for job interviews, and the parent company announced a plan to increase the salary of the 650 American restaurants it directly manages by an average of 10%. The sportswear group Under Armour announced on Wednesday that it has substantially increased its minimum hourly wage.

Robert Vitale, CEO of Grain Group Post Holdings, warned earlier this month that rising costs and “there are no workers to fill the factory” are challenges, “We will have to weather this long and hot Summer”. But he said he hopes that when the extended unemployment benefits expire in September, more people will be able to return to work.

Due to the special circumstances of the Covid-19 pandemic and the response of policymakers, analysts and policymakers disagree on how long investors can expect cost and labor pressure to last

“We have never been closed for such a long time [and] During the economic recession, we have never received financial support of this magnitude. Upcoming. . . Said Louise Sheiner, policy director of the Hutchins Center for Fiscal and Monetary Policy (economic think tank).

“There is a lot of demand in certain areas, but… you don’t know how [long] she says.

Ellen Zentner, chief U.S. economist at Morgan Stanley, agrees that short-term price increases are always foreseen, but he warned that inflation data “runs more than expected. high”.

“I see a lot of risks here: the risk of continuing inflation, we cannot get enough jobs as soon as possible, and the risk that certain supply chain disruptions continue. Extend production time and reduce production efficiency.”

Morgan Stanley still expects the U.S. economy to grow by 8% this year, but if the disappointing job growth continues throughout the summer, it “will attract a lot of attention,” Zentner said.

However, recent market trends indicate that investors are not worried that today’s high consumer prices herald a long-term recovery. inflation.

After the turmoil in the first quarter, the sell-off of US government bonds eased. After yields approached 1.8% in March, the benchmark 10-year bond is now trading at less than 1.7%. Inflation hurts these bondholders because it erodes the value of their interest payments.

Short-term inflation indicators are still higher than long-term inflation indicators, which shows that investors largely agree with the Fed’s view that the current level of inflation is “temporary.”

Richardson of ADP said that many of the current cost pressures are the product of temporary bottlenecks, and it is expected that September will become a “turning point in employment” as children return to school and parents return to work.

But for those trying to read mixed information from the U.S. economy, part of the challenge is that the pandemic has led to rapid structural changes. She said: “There is nothing in history that can imitate this situation, even if there is. The economy has also shifted. A different direction.”