The predictable — and unexpected — economic consequences of COVID.

As the United States emerges from the COVID crisis, the shape of the American economy is coming into clearer view.  Part of that picture is the growing realization that lockdown policies, vaccination rollouts and government stimulus actions have created imbalances in many sectors — imbalances that will time to return to equilibrium.

Everyone knows the business sectors that have been hammered “thanks” to COVID:  hospitality and foodservice, travel and tourism, the performing arts, sports and recreation, commercial real estate. 

At the same time, other corners of the economy have blossomed — home remodeling, consumer electronics … and the public sector.  This last one isn’t a function of any kind of increased demand, but rather pandemic-long guaranteed continuing income to workers on the public payroll.

As we emerge, factories and the building trades are finding it difficult to ramp up their operations to meet growing demand, hampered in part by supply chain issues and shortages of raw materials and parts sourced from offshore suppliers.  As of now, most economists believe that such shortages won’t turn out to be long-term problems — but we shall see over time if this is actually the case.

Another imbalance is what’s been happening to the labor force.  Government stimulus checks and unemployment benefits have been sufficiently robust so as to depress the number of workers seeking a return to employment in certain sectors — particularly in the service industries.  As just one example, restaurants everywhere are finding it more than a little difficult to staff their reopened locations.

The latest forecasts are for the U.S. economy to grow at a blistering pace during the balance of 2021 — perhaps as high as an 8% or 9% seasonally adjusted rate of growth.  That would be historic.  But not everyone is going to benefit.

In a recent Wall Street Journal article, David Lefkowitz of UBS Global Wealth Management points out that “the very sudden stop to the economy and then the very quick restart has created a lot of havoc — a lot of businesses have gotten caught flat-footed.”  But beyond this is the very real likelihood that inflation will emerge as a key factor in the economy, for the first time in more than 40 years. 

Viewed holistically, the situation in which we find ourselves is one where many new and unusual “ingredients” have gone into the economy over the past year, resulting in an economic brew that is just as unusual — and perhaps even unique in our history. 

An artificially depressed economy due to government fiat … followed by massive economic stimulus paid for by expanding the money supply … coupled with sudden demand propelling certain industries over others due to government-driven dictates: for sure it’s a new mix of factors.  Considering this, I’m not at all sure that very many people inside or outside of government have a clear handle on what the next 18 months will actually bring.

But that doesn’t mean we can’t speculate about it, right?  In the comment section below, please share your perspectives on what’s in store for the U.S. economy.  I’m sure others will be interested in reading your thoughts.

One thought on “The predictable — and unexpected — economic consequences of COVID.

  1. The delusional element in this muddle is certain politicians attempting to play Franklin Roosevelt, using the pandemic as an excuse and invoking the depression as comparison. We have not been in a depression. We’ve been asleep. It’s temporary.

    The current period is actually more like the end of World War II — replete with bottlenecks and a short burst of inflation as pent-up demand hits the consumer markets, but it’s an inherently prosperous era.

    Regulators were disappointed in 1945 to see the quotas, mandates, ration cards and other sources of their power waft away like so many smoke rings as the postwar economy ramped up. Similarly, if unwanted expenditures and controls on economic freedom are rammed through today, these will be repudiated at the next election. Given the circumstances of the past year, NO ONE is clamoring for a more powerful nanny.

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