Corporations are battling signs of overheating in the U.S. economy

The pace of the U.S. rebound from the Covid-19 crisis has left executives, investors and economists scrambling to decipher whether job shortages and rising prices point to a short-term economic heatwave or a longer period of risk. inflation.

Some of the nation’s largest companies have praised the strength of the recovery in recent earnings announcements while refusing to predict whether quick vaccinations and multiple fiscal incentives will cause corporate problems. America.

“The second half may have more uncertainty than a normal year,” warned Doug McMillon, chief executive at Walmart, this week, even as he gave estimates of the strength of spending on stocks. consumer and the expectation that rising storage rates are shown to continue up demand.

3M, the manufacturer, was with a series of companies promoting “severe inflation” in labor costs, freight and some raw materials last week, even though it was said that the price increase was customers in response.

Some recent economic data is raising red flags, as is the jump consumer price, even if it is driven by factors that may be transient. This was accompanied by a sharp rise in the price of fares as Americans began to travel again, and the increased demand for used cars was caused by a lack of chips that prevented the production of new ones. vehicles.

Unexpectedly weak job performance last month also covered a much more rotten picture, and was driven by a drop in employment in temporary jobs, transportation and warehousing, and manufacturing.

“The pandemic… Cut the market and selected certain industries and destroyed them like a hurricane. [but] other industries are skipped and left unattended, ”said Nela Richardson, chief economist at ADP.

Those variations are seen in the profits of companies. A sharp rise in lumber prices has hurt home makers and DIY retailers, while clothing chains like TJX warn that driver shortages could continue to be “stubborn” in costs. shipment throughout the year.

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Gershon Distenfeld, co-head of fixed income at AllianceBernstein, said: “It has long been seen that there will be price increases in the spring and summer of this year. The question is not whether prices will rise in the short term-it is. It is whether will it continue. ”

Despite widespread evidence of labor shortages, companies including Disney and Home Depot have expressed confidence that they can be staffed to meet the revitalization of consumer demand while also passing on higher cost to customers. .

A tighter labor market for some employers, however, as a combination of factors makes it more difficult to find staff, including greater unemployment benefits, lack of employment. child care, and the fact that some workers remain worried about getting a job while the virus is still spreading.

A franchisee of a McDonald’s in Florida made headlines last month for offering $ 50 to anyone who shows up for a job interview, and the parent company announced plans to increase wages by an average of 10 percent in about 650 U.S. restaurants directly managed by it. Under Armor, the athletic apparel group, on Wednesday announced a widespread increase in the minimum hourly wage.

Rising costs and “just a shortage of workers to fill the plants” are the challenges “we will need to get through this long, hot summer”, announced Robert Vitale, chief executive of cereal group Post Holdings, last month. Instead he said he expects more people to return to work once the ongoing unemployment benefit expires in September.

Analysts and policymakers are divided on how long investors can expect cost and labor pressures to last due to the unique circumstances of the Covid-19 pandemic and the resulting response from policymakers.

“We’ve never stopped like that this long [and] we have never had financial support of this magnitude during a recession. The opening will be. . . bumpy, ”said Louise Sheiner, director of policy at the Hutchins Center on Fiscal and Monetary Policy, an economic think-tank.

“There’s a whole bunch of demand in some areas, but… You don’t know how. [long] it will take a long time, ”he said.

Ellen Zentner, chief U.S. economist at Morgan Stanley, agreed that a brief rise in prices is often seen, but warned that inflation data is “running higher than expected”.

“I see a lot of risks here: the risk of even higher inflation continuing, the risk that we won’t be able to get enough jobs back as soon as we want, and the risk that some of the supply chain disruptions which keeps it higher and shortens production. ”

Morgan Stanley still expects 8 percent growth for the U.S. economy this year, but if disappointing job growth continues until the summer “that will raise a lot of concern,” Zentner said.

Recent market movements, however, suggest that investors are less afraid that higher consumer prices are now heralding a much higher battle. inflation.

A sale of U.S. government debt came to a head after a turbulent first quarter. After giving up nearly 1.8 percent in March, the benchmark 10-year bond now sells below 1.7 percent. Inflation has hurt bondholders because the amount of their interest payments has deteriorated.

Short-term inflation research still sits high above their long-term counterparts, showing that investors have largely subscribed to the Federal Reserve’s view that current inflationary inflation is “transient”. .

Richardson told ADP that most of the current cost pressures product timeless bottlenecks, and expects September to be “a crucial point for work” as children return to schools. and their parents return to work.

But as for the challenge for those looking to read the mixed messages from the U.S. economy is that the pandemic resulted in rapid structural change, he says: “Nothing in history can replicate this and even if there is , the economy is moving in a different direction. ”

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