Econ Weekly (Sep. 13, 2021)
Featured Place: Golden Triangle, Mississippi
photo courtesy of Tourism Mississippi
Inside this Issue:
A Fall Stall? Growth Prospects Slow Amid Delta Despair
Cool Down from the Wind-Down? Stimulus Withdrawal Adds to Risk
Debt Danger Deepens: U.S. Treasury Headed for Default if Congress Doesn’t Act
General Dynamics: Building Subs for Uncle Sam
Social Insecurity: Federal Pension Program Running out of Money
Health Care Prices: How Much for that Crutch? It’s Complicated.
Food Prices: What Price for that Rice? It’s Going Up.
Meeting Weed’s Needs: Financing the Cannabis Sector
Blow Tech: Breakthroughs in Offshore Wind Power
Of Bonds and Bondage: A History of Slave-Based Finance
And This Week’s Featured Place: Golden Triangle, Mississippi, Deep South Success
Quote of the Week
“One of the questions Amtrak is often asked is why the United States does not have faster or more high-speed trains like most European countries in corridors where that would make sense. The answer is simple: money.”
- Amtrak CEO William J. Flynn, addressing a House Committee on Transportation and Infrastructure in May
Autumn is here. Across the country, schools are back in session. But Covid just won’t go away.
As summer said goodbye, with it went optimism about the economy. The worldwide spread of Covid’s Delta variant, while nowhere near as impactful as earlier waves, is nevertheless causing trouble. We’ll get a better idea of just how much in a few more weeks, when Corporate America starts reporting Q3 results. But already clear is a slowdown in some leisure activities including travel, plus global supply chain disruptions that are getting worse, not better, as key Asian suppliers close factories. Still, there’s a great shortage of everything from chips to ships, with no end in sight.
That means no end in sight to the sharp price inflation that’s bedeviled policymakers throughout 2021. We’ll get the August consumer price index reading on Tuesday, offering new clues on how transitory or persistent the current situation really is. The job market, meanwhile, influenced by Covid’s resurgence, showed highly disappointing numbers for August—just 235,000 new jobs, none of them in the closely watched leisure and hospitality sector. This follows average monthly job gains of 350,000 during the six prior months. Restaurants and bars, in fact, saw 42,000 job losses during August.
Prices still up. Labor markets still tight. And growth poised to slow as the Covid crisis persists. To this add more disruptive weather, including Hurricane Ida’s impact on Gulf Coast oil facilities. What’s more, Federal stimulus support is waning, including an end this month to supplemental unemployment benefits, which follows the end of a federal ban on home evictions. There are no assurances, meanwhile, that two new spending bills—measured in the trillions of dollars—will overcome legislative challenges. Hence the newly developing worries about the economy’s resiliency. There are even murmurs of the world “stagflation,” a 1970s-era malady defined by high inflation and GDP stagnation.
That sounds at least a bit hyperbolic. GDP did grow a robust 6.5% in Q2, according to the latest estimates. That follows 6.3% growth in Q1. And jobs are certainly open to the willing and qualified—10.9m of them, according to the latest JOLTS report. This might be the biggest puzzle of all for the post-pandemic economy: Why so many jobs, yet so many jobless?
It’s a puzzle front and center in the mind of Fed chief Jay Powell, whose much-anticipated Jackson Hole speech this summer telegraphed a readiness to start tapering asset purchases before the year is done. He was speaking though, before the disappointing August jobs report. The Fed has three more policy meetings in 2021, one later this month, another in early November and the last in mid-December. To be clear, the Fed won’t be raising interest rates any time soon, just dialing back purchases of Treasury and mortgage-backed securities.
The Fed separately released its latest Beige Book, highlighting late summer developments across the country. Frequently repeated are mentions of labor, resource. materials and product inventory shortages impeding business activity. There’s mounting pressure on firms to raise prices. But demand remained strong through the summer, if somewhat weaker than in spring. The manufacturing, transportation and housing sectors, despite higher input costs, are enjoying a profit boom. The labor-heavy leisure and hospitality sector, meanwhile, saw a summer surge before Covid’s comeback cooled things off as autumn approached. The report featured anecdotes about the semicon shortage (not ending anytime soon), a wave of early retirements in the health care sector (especially nurses) and ongoing droughts affecting agriculture in parts of the country (most importantly California’s Central Valley). Examples abound of lower-income people challenged to find affordable housing and childcare, complicating efforts to heal the job market. The Boston Fed cited a firm who said pay for logistics specialists had doubled since the start of the pandemic. The Richmond Fed cited a business forced to refund several bridal parties because dresses did not arrive on time for weddings.
Another big topic of discussion regarding the Fed concerns Powell’s future—he’s up for reapportionment early next year. Will President Biden go with someone else to assume what’s arguably the country’s most important economic job? Of course, the position of Treasury Secretary is worthy of that distinction as well. It’s currently filled by Janey Yellen, whose top concern right now is avoiding a loan default. Catastrophic though that would surely be, it could happen as early as next month if Congress doesn’t act to lift the debt ceiling. Legislators tend to do so at the eleventh hour. But one never knows.
Is Apple’s business model under threat from fraying U.S.-China relations and legal assaults on its app store? To what extent will Washington regulate up and comers in the financial sector like Robinhood and emerging crypto-players like Coinbase? Will Walmart succeed with its new Amazon-like GoLocal delivery service for merchants? What’s next for Elon’s creations Tesla and SpaceX? Is last week’s stock market retreat a harbinger of things to come? Those were a few of the hot discussion topics leading up to the weekend, one in which Americans commemorated the 9/11 attacks 20 years earlier.