Corporations are struggling to interpret signs of a warming in the U.S. economy

The speed of the rebound of the Covid-19 crisis in the US has been interpreted by executives, investors and economists as interpreting labor shortages and rising prices to indicate a short-term economic summer heat or longer risky inflation.

Some of the largest companies in the country have praised the strength of the recovery in recent earnings announcements, refusing to announce whether the rapid spread of vaccines and massive fiscal stimulus will cause problems for the American corporation.

“The second half will have more uncertainty than a normal year,” Walmart CEO Doug McMillon warned this week, although he and his contemporaries noted the strength of consumer spending and the forecast for higher savings rates. demand up.

3M, the manufacturer, was among many companies that highlighted “tremendous inflation” in the costs of labor, commodities and some raw materials last week, although it said it had raised prices for customers in response.

Some recent economic data has created red flags, such as the jump consumer prices, although driven by factors that may be transient. Among them, there was a significant rise in the price of aircraft when Americans began to travel again, and a higher demand for used cars caused by a shortage of chips that affected the production of new vehicles.

Unexpectedly weak job creation a more confusing picture was also disguised last month, leading to declines in employment in temporary jobs, transport and storage and manufacturing.

“Pandemic. . . it split the market and selected certain industries and demolished them like a hurricane [but] it skipped other industries and left them whole, ”said ADP chief economist Nela Richardson.

These differences have been revealed in corporate profits. The sharp rise in wood prices has hurt home builders and DIY sellers, with clothing chains like TJX warning that drivers ’shortages could cost goods” very hard “year-round.

Gershon Distenfeld, head of fixed income at AllianceBernstein, said: “It’s been a long time since there has been a rise in prices in the spring and summer this year. The question is not whether prices will rise in the short term. Whether this will be sustainable.”

While staff shortages stand out, companies such as Disney and Home Depot have expressed confidence that employees will be able to cope with the recovery in consumer demand and pass on higher costs to customers.

The labor market is tighter for some employers, however, as combinations of factors make it difficult to find workers, including higher unemployment benefits, a lack of childcare and the fact that some workers remain worried while the virus is still spreading. .

A McDonald’s franchise in Florida has made headlines he applied to a job interview last month for offering $ 50 to anyone and announced plans to raise salaries by 650% in 650 U.S. restaurants run directly by the company. Under Armor, a sportswear group, on Wednesday announced large hourly wage increases.

The rising costs and the challenge of “just having staff to fill the plants” were “we will have to navigate this hot, long summer,” warned Robert Vitale, CEO of the Post Holdings cereal group, earlier this month. But he said he hopes more people will return to work in September when long-term unemployment benefits expire.

Analysts and policymakers divide how long investors can afford costs and labor pressures due to the special circumstances of the Covid-19 pandemic, and the response of policymakers

“We have never been closed for a long time [and] we have never had fiscal support of that size in a recession. It will be an opening. . . it’s uneventful, ”said Louise Sheiner, policy director at the Hutchins Center’s Tax and Monetary Policy Center, a group with economic thinking.

“There is a lot of demand in some areas, though. . . you don’t know how [long] it will last, ”he said.

Ellen Zentner, chief economist at Morgan Stanley in the US, agreed that a short-term rise in prices was always forecast, but warned that inflation figures were “even higher than expected”.

“I see a lot of risks here: the risk of higher inflation being maintained, the risk of not being able to return soon enough to work, and the risk of some of these supply chain disruptions happening. Longer and reduced production.”

Morgan Stanley still expects 8% growth for the U.S. economy this year, but if disappointing job growth continues in the summer, “that would be a big concern,” Zentner said.

However, recent market movements suggest that investors are not afraid that current higher consumer prices predict a longer time. inflation.

U.S. government debt sales moderated after a tumultuous first quarter. After issuing nearly 1.8 percent in March, the 10-year bond trades below the benchmark 1.7 percent. Inflation is detrimental to these bondholders because it erodes the value of interest payments.

Short-term inflation gauges are positioned above long-term counterparts, with investors largely agreeing with the Federal Reserve’s view that the current inflation surge is “transient”.

Richardson of the ADP said many of the current cost pressures have been the result of temporary bottlenecks, and he expects September to be a “turning point in employment” when children return to school and parents return to work.

Part of the challenge for those trying to read the mixed messages of the U.S. economy is that the pandemic has caused rapid structural changes. He says, “There is nothing in history that can imitate it, and yet the economy has changed in a different direction.”