June Monthly Economic Dashboard: Strong growth despite widespread supply chain problems
The Monthly Economic Dashboard from Nationwide Economics features timely data and commentary on employment, financial markets, consumer activity, business performance and inflation, along with dials and charts that provide the you with a scannable at-a-glance view.
Recent data on the economy continues to show that growth accelerated sharply in the second quarter led by a surge in consumer demand upon fuller reopening of in-person activities. But there are supply constraints across the economy as workplaces and businesses adjust to the post-pandemic environment that are limiting the expansion in certain sectors.
Payroll gains accelerated for May but were expected to be even stronger as many employers (especially among small businesses) reported difficulty finding workers. COVID-caused supply chain disruptions for multiple commodities and materials have slowed supplier deliveries while leading to a growing backlog of orders for producers.
Lack of available homes for sale has also cooled the hot housing market even as demand from homebuyers remains strong. Prices of homes and some materials are rising sharply in response to the large discrepancy between supply and demand, helping to push up consumer inflation – at least temporarily – to among the fastest readings over the past 30 years.
Learn more in the monthly review on page three.
Inflation readings have spiked this year due to COVID-related supply disruptions combined with a sudden surge in demand as the economy reopened fully. Still, the sharp price gains have not been broad-based according to the Cleveland Fed’s trimmed-mean inflation gauge — suggesting that inflation readings have peaked and will decelerate over the next year as supply chains heal.
Even with this slowing in inflation over the next year, we expect trend inflation to be a bit higher than in the pre-COVID period, as some of the increase will not be transitory. But the risks are decidedly to the upside. Record money growth and expanding federal budget deficits could add to inflationary pressures — although these factors have not been correlated with inflation over the past 40 years.
Economic growth is projected to be exceptionally strong this year and remain above-trend in 2022 — but beyond that, potentially higher taxes and a stricter regulatory environment (plus eventual Fed tightening) should slow trend growth to a 1.5-2.0 percent range.