“We don’t have another example of the last time we reopened a $20 trillion economy with lots of fiscal and monetary support,” Fed Chair Jerome H. Powell told lawmakers this month. “We are humble about what we understand.”
Generally, many parts of the economy are moving in the right direction. Hiring and consumer spending are up as people take vacations, eat at restaurants and buy tickets to movies and concerts. That rebound is due, in large part, to vaccination efforts that are making some people more comfortable to step back into their old routines.
“Let’s get through this volatile period so we can really see where the economy is,” San Francisco Fed President Mary Daly said on CNBC this month.
Several economic benchmarks this week may help policymakers steer through some of the fog.
On Wednesday, the Federal Reserve wraps up two days of policy meetings, and Powell will share his expectations for the economy, inflation and the labor market. On Thursday, the Bureau of Economic Analysis will release the gross domestic product report, revealing how much the economy grew between April and June as Americans unleashed pent-up savings. Then on Friday, June inflation data comes out from the Bureau of Economic Analysis.
Those updates will follow some other choppy indicators. The most recent weekly count of unemployment claims went up. New-home sales dropped for the third straight month in June as the hot housing market edged buyers out. The delta variant of the coronavirus is spreading, sending fresh anxiety into the U.S. and global economy.
“What the Fed needs is more data on the economy and more information on the risks posed” by the coronavirus variants, said Joseph Brusuelas, chief economist at RSM. “What it may not have is time, despite the need for more data to adequately ascertain if the risks to the outlook linked to inflation are transitory or persistent.”
Economists expect the economy grew roughly 8 or 9 percent between April and June on an annualized basis. That would probably bring GDP above the level reached at the end of 2019.
The Biden administration is trumpeting a bold economic agenda, and many economists credit some of the surge in consumer spending to $1,400 stimulus checks and extended unemployment benefits.
But there is still a long way go to go.
Roughly 6.8 million jobs haven’t come back since February 2020. Inflation has also become a major policy debate for the White House, Congress and the Federal Reserve.
So far, the message from the White House and the Biden administration is that the price increases are limited to parts of the economy that were battered by the pandemic, such as autos and tourism. Supply chain backlogs on a range of items, from semiconductors to sofas, are also lifting prices and will take some time to clear, Fed and White House officials say.
Powell, Treasury Secretary Janet Yellen and other administration officials say the price hikes are temporary, or “transitory,” and there aren’t signs that inflation is becoming a widespread force in the economy.
Yet inflation is climbing faster and higher than they expected, and many Republicans argue that the Fed is going to be behind the curve once it decides to raise interest rates and pull back other monetary supports. At this week’s meeting, the Fed’s leaders will continue to debate how to gradually diminish asset purchases without sending Wall Street into a tantrum.
The supply chain issues are crucial for policymakers’ gauge on inflation — and for economists’ grasp of how much businesses can produce.
“Are firms replenishing what’s on the shelves? That is a place where people trying to forecast the first estimates of GDP often have really big misses,” said Wendy Edelberg, director of the Hamilton Project and former chief economist at the Congressional Budget Office. “What’s particularly important right now about that is that inventories have been crazy low.”
Economists hope Thursday’s GDP report will also show whether consumer spending is shifting from goods to services. While people stayed home last year, they directed their money toward “stuff,” like fire pits, patio furniture and home office equipment.
But lately there have been signs of a turnaround. Restaurant dining has largely rebounded, at times surpassing pre-pandemic levels. In June, employment jumped in the leisure and hospitality sectors, along with hotels, arts and entertainment.
Constance Hunter, chief economist at KPMG, said she will be looking for investment in software, computer equipment and research and development. That type of spending and planning, Hunter said, could help boost business productivity — not only through the pandemic recovery but also for years to come.
Hunter gave the example of a new program that allows her colleagues to edit slide decks at the same time — a major timesaver for team members working from different places. But she noted that kind of investment isn’t reaching all workers equally. Many people still aren’t back in jobs, fearful of the virus or reevaluating the kind of work they want to do altogether.
“I really think there’s going to be this huge divide in the labor market,” Hunter said. “The attractiveness of having a job where you can work from home has greatly gone up because of the risk of an in-person job.”