First 100: The Bumpy Picture of Post-Pandemic Economics

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

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It’s April 13, 2021 and welcome to First 100. You can sign up to have First 100 delivered to your email by clicking here.

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.

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.

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.

What Day of Biden’s Presidency Is It?

Day 84.

Today I Learned

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