Over the last year the economics profession has been somewhat humbled as there have been a series of inaccurate assessments and predictions that go all the way back to the start of the pandemic crisis. In April of 2020, the assertion was that this crisis was all likely to come to an end in June or July – at the latest. We all know what happened to that “summer rebound.” Earlier this year we predicted a recovery in 2021 but a slow and cautious one with more of the growth coming at the end of the year. Now we are looking at surging demand driving a remarkable rate of recovery. The Fed is asserting that GDP growth will be as robust as 6.5% by the end of the year and indeed the first quarter numbers were on target for that annual rate. Suddenly the issue becomes rapid growth and all the attendant adjustments. The data now is showing a near classic “V” recession – a short and sharp decline followed by a dramatic rebound. The numbers for this year now show a recovery that goes all the way back to performance seen before the 2008 downturn.
The prime challenges now are growth related. There are supply chain breakdowns that stem from inadequate production to go along with the issues created by the pandemic and one-off situations such as the Suez Canal blockage. Many producers were caught flat footed by the crisis last year and they were stuck with very high levels of inventory that was near impossible to get rid of. They first wanted to work that inventory down before ramping up for more. Now they want to be certain that this demand is sustainable. It now appears the consumer really intends to put their money where their mouth is, and producers are starting to trust that what they are seeing is real. The IMF has released a report that indicates there is over $5.5 trillion in excess savings in the world today. That money is likely to come spilling into the system all at once and that puts pressure on supply chains and tends to provoke inflation concern. Supply chains were an issue prior to the pandemic but now the system is strained to the breaking point and we will be dealing with shortages and higher prices through the next several months.
Not exact news, but some good news
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