Econ Weekly (July 5, 2021)

Featured Place: Madison, Wisconsin

Jul 13, 2021

Inside this Issue:

The Latest on Labor: Lots of New Jobs in June
Ford Gored: June Sales Plummet as Chip Crunch Grips
Health Care History: How Did It Get So Messed Up?
Dining In, Dining Out: General Mills Mulls America’s Meals
The Dollar Store Story: The Triumphs of Small Box Retail
Amazon’s Impact on Prices: Deflationary or Inflationary?
Wholesale Fairy Tale: Record Sales for Distribution’s Whales
Oh Gee, 6G: Looking to the Next, Next Thing in Telecom
Uncle Sam’s Helping Hand: How U.S. Stimulus Stims Global Growth
And This Week’s Featured Place: Madison, Wisconsin, More than Just Campus and Capitol

Quote of the Week

“In recent months, public interest in a ‘digital dollar’ has reached fever pitch… But before we get carried away with the novelty, I think we need to subject the promises of a CBDC [central bank digital currency] to a careful critical analysis.”

-Fed Vice Chair for Supervision Randal Quarles, speaking at the Utah Bankers Association Convention

Market QuickLook

The Latest

The June figures are in. And they deserve some celebratory Independence Day fireworks.

The U.S. economy last month produced a hearty 850,000 new jobs, up from 583,000 in May and 269,000 in April. It’s a good sign for the convalescing labor market. And it heightens the likelihood of the Federal Reserve tapering its stimulus measures sooner than later.

Or maybe not. The June jobs report, viewed in detail, portrays a labor market still far from fully mended. Some 9.5m Americans remain unemployed, up from 5.7m just prior to the Covid crisis. Another 6.4m want a job but aren’t for the moment looking for one (in some cases for childcare reasons or health fears). The unemployment rate remains at 5.9%, compared to 3.5% pre-crisis. For Black males (excluding teenagers) the rate is close to 10%. What’s more, the percentage of the U.S. population in the labor force remains stuck at historically low levels—just 62% in June.

Write it down in your calendar: The Fed’s next FOMC policy meeting will take place July 27th and 28th. What will it do? That depends in part on whether inflation—much higher this spring than most economists expected—continues to run hot. The Labor Department will publish June’s consumer price index (CPI) on July 13. But the Fed’s preferred inflation index—personal consumption expenditure (PCE)—won’t come out until after the next FOMC meeting (its scheduled release is July 30).

A strengthening if still-suboptimal labor market is one defining characteristic of the U.S. economy as it begins the second half of 2021. Another is the unequivocally robust demand reported across industries. Ever clearer signs of cooling off are now evident in red-hot sectors like housing and autos. But broadly speaking, there’s ongoing demand bullishness, as highlighted in the latest ISM manufacturer survey. Respondents, however, also described a corollary characteristic of the economy right now, one affecting the supply side. They report trouble filling open positions, worker absenteeism, shortages of raw materials, difficulties transporting products and rising commodity prices. So: Demand extremely strong. Supplies extremely tight. Frustrating, but better than the opposite.

The first half of 2021 will be most remembered for the epic vaccination drive that effectively ended the pandemic for most Americans. By the end of the second quarter, life was back to normal in many respects—restaurants open, planes full of tourists, packed baseball stadiums booing the Yankees.

Some other first-half highlights: Remember the wild meme stock phenomenon (GameStop, AMC, etc.)? Overall, the S&P 500 stock index rose 34% in the half, with the tech-heavy Nasdaq up 52%. That was representative of a wider outbreak of rising asset prices—homes, commodities, SPACs, etc.—that left some fearing a bubble. A bubble bust did occur in the wild west cryptomarket, whose future is nevertheless a target of ongoing investment.

Borrowing costs remained cheap after a brief Q1 jump in Treasury yields petered out. After another big round of fiscal stimulus in Q1, President Biden’s efforts to pass infrastructure and social aid legislation remain unfulfilled. At the state and local government level, budgets that looked crisis-like early in the pandemic now appear flusher than ever. Corporate America—including its financial firms—had a great first half, with more details on Q2 coming soon. American households, buoyed by the fiscal stimulus and rising asset prices, are in good shape too.

Nature wouldn’t stay out of the headlines. Unusual cold in Texas. Unusual heat in the Pacific Northwest. These and other weather events punctuated concerns about climate change, accelerating an end to the age of hydrocarbons. With companies like ExxonMobil watching nervously in Texas, auto companies in Detroit are betting the farm on electric vehicles.

Speaking of the farm, more federal dollars, higher prices and a boost in food consumption made it a good first half for the agriculture sector. That said, a severe western drought is threatening the livelihoods of some farmers. Nature wasn’t responsible for all disruptions though. An already strained supply chain was at one point gummed up further by a mega-ship stuck in the Suez Canal. A semiconductor shortage became a major national security issue. Cyberattacks were an even bigger national security issue.

What else stands out about the first half of 2021? A housing shortage. Big railroad and media mergers. Corporate titans and private equity flooding money into health care. China tensions flared. Will Apple build a car? Everyone’s hoping to unlock productivity gains with artificial intelligence. Washington wants to check Big Tech. Logistics and e-commerce are more vital than ever. Exports are down but imports are way up. The other health crisis—the opioid crisis—worsened during the pandemic. Structural deficiencies in the systemically important short-term money market remain unaddressed. The care economy and the creator economy received lots of attention. Global tax reform is high on the political agenda. And stepping back for a look at what the American economy needs most… It’s arguably the need to reverse a decades-long upward cost trajectory of the Three Hs: housing, health care and higher education.

In more immediate matters, oil prices rose again last week, chipping away at those solid household finances. There’s a changing of the guard at Amazon. Krispy Kreme and Robinhood were in the news for their IPOs. United ordered lots of new planes from both Boeing and Airbus. Facebook got a favorable ruling on an antitrust matter. And Walgreens spoke of building new health care solutions for customers “overwhelmed trying to manage different health conditions, providers, appointments, bills and medication, all of which are on different platforms and channels.” That sums things up quite nicely.

To read the remainder of this issue, visit www.econweekly.biz

Econ Weekly