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April 13, 2021

The Bumpy Picture of Post-Pandemic Economics

We will see a boom living alongside employment struggles, shortages and
supply shocks

 

The economy this year will be much like Godzilla v. King Kong:
rampaging, but forgetting the little guy in the process. (Artur
Widak/NurPhoto via AP)

The Chief

**** People are flocking to see a popcorn movie. Godzilla v.
Kong, which is about, well, Godzilla fighting King Kong, is up to $70
million in box office receipts

in its first two weeks, with better-than-expected numbers last weekend.
It's another example that, while the coronavirus crisis still lingers,
the crisis of not enough economic demand is fading away.

I like to check these high-frequency indicators

that Bill McBride posts weekly, and they are almost all in a straight
line upward, with a couple exceptions: subway traffic in New York City,
where a new outbreak has raised caution, and gasoline usage, which
recovered to about 90 percent of its pre-pandemic numbers by last June
and has stayed there. Hotel occupancy is up, flights are up
,
moviegoing is up, some states have restaurant activity well above
pre-pandemic levels. Business activity is rising at its fastest level
since 2014
.
People are shopping again
.

There's an important perspective to keep in mind here: At the same
time that this is happening, over the 12 weeks of the Biden presidency
something close to 9 million Americans

had to file a first-time jobless claim. More than 4 million Americans
have been out of work for more than 27 weeks
.
There are serious imbalances in the country, which necessitated the
March rescue package. The fact that this money got spent so quickly

could be an indicator of human need as much as pent-up demand. And by
highlighting general economic trends we risk neglecting the wildly
divergent fortunes
of rich
and poor people within the economy.

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**** All that said, the economy in aggregate is taking off.
Goldman Sachs has predicted 8 percent growth

in 2021, the biggest rate since 1951. By another measure, the boom will
be unmatched since World War II
.
The consumer comes into the post-corona world with fat wallets

and a need to get out of the house. And there are reasons to be
optimistic

that it will continue, even if some of it is technological triumphalism
that may not work out. (Good demographics, the deployment of mRNA
technology for other uses, the policy desire to keep things running hot

and savings on commute-related expenses

strike me as positive trends.)

However, that last one can be just as negative as positive, or at least
disruptive. There's increased well-being with telecommuting but also
less of a need for the stores serving the central business district, the
ones doing dry cleaning and a quick salad lunch. As a result, physical
retail businesses are going to continue to crumble. UBS estimates the
closure of 80,000 retail stores

across the country by 2026, and these establishments simply use more
staff than an Amazon warehouse or a Dollar General. Even in leisure
it's too late to save some of those with weaker cash reserves; I was
stunned to learn the Arclight Cinemas in Los Angeles will be permanently
closing
,
and I'd expect more local chains like this to go under.

Another problem is one of unmatched demand. Some demand can be
accommodated with supply, like with airlines adding more flights
.
But supply chain issues have been prevalent throughout the pandemic, and
added demand is snarling them more. Let me try to explain this simply.
Suppose you had two operations, one getting Manhattan clam chowder soup
from New England to Manhattan, and the other getting New England clam
chowder soup from Manhattan to New England. (For the purposes of this
example, there's one river between the two.) A bowl of New England
clam chowder gets across the river to Boston and is emptied, filled with
Manhattan clam chowder, and sent back to New York City. And there are
like 1,000 bowls doing this.

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Then the pandemic hits. Some shippers are just taking off with the soup
bowls, or idling them, or sending them back empty. Over the course of
months, instead of an equilibrium you have 800 soup bowls on one side
and 200 on the other. And now everyone wants soup again and there's
nothing to transport it in. This is a real thing that's happening with
shipping containers. There's a huge cargo backlog at the ports
,
and container ships sitting in harbors waiting to be unloaded, and
mismatches on cargo getting out of export-driven areas.

A slightly different issue is responsible for a semiconductor shortage
(basically producers failed to anticipate demand) that has stopped auto
factory production

cold. While President Biden held a summit on semiconductors

yesterday, it's not like you can ramp up the chip machine tomorrow,
and while we wait years for domestic supply

manufacturing will take a hit. For different reasons (mainly the noble
goal of not allowing a flood of foreclosures), housing supply is
incredibly low
,
cutting into an industry that usually rides economic waves. There are
more realtors in the U.S. than houses for sale right now.

This is how jobs might lag, or at least good-paying jobs, in an economic
boom. Replacement jobs may not pay high wages or offer enough
protections to inspire workers to take them (people don't want to be
restaurant workers

right now because they're hell on the unvaccinated); women that cannot
re-enter the workforce because of childcare responsibilities is another
hindrance.

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Supply snarls are, in economic theory at least, going to lead to some
random short-term spikes in inflation, helped along by a statistical
anomaly. Year-over-year inflation numbers this spring, compared to the
very beginning of the pandemic when we had deflation, will look
artificially high
.
Indeed, the consumer price index just posted the largest one-month gain

since 2012. It will be a test of the intellectual honesty of Larry
Summers to see if he points to these inflation numbers as proof that
Biden's plan was "excessive
."

These bumps will live along with a high-spending, ready-for-action class
of consumers who want to reverse their recent lifestyles. Jobs will come
back but people might be puzzled when they hit a wall. They might
experience shortages they thought ended with COVID. They might have
trouble with the transition to a new normal, in an economy reliant on
outdated habits. The Biden administration needs to understand these
shifts and use fiscal power to fill in the gaps. In a way this is a long
version of why we need that infrastructure package
.

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What Day of Biden's Presidency Is It?

Day 84.

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Today I Learned

* The FDA and CDC are pausing the Johnson & Johnson vaccine

because of a rare blood clot in women. (U.S. News and World Report)

* Biden's failure to just sign a piece of paper raising the refugee
cap

is one of the more craven developments early in his term. (HuffPost)

* CDC is adamant that a lockdown would do more good

than a vaccine surge in Michigan. But two weeks ago vaccines would have
helped! More foresight, please. (New York Times)

* Economic team puts out a state-by-state summary

of benefits of the American Jobs Plan. (Document Cloud)

* The Israeli attack on an Iranian nuclear site is damaging multilateral
talks
to revive the nuclear deal. (Financial Times)

* Senate Democrats using a modest anti-Asian hate crimes bill

to try to draw out a Republican filibuster. (Politico)

* Business Roundtable going all in against

the Biden tax plan. (Bloomberg)

* New Customs and Border Protection chief criticized Trump immigration
policy
.
(New York Times)

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