The economic dam is bursting and the economy is booming. Demand in the US was described as “very, very strong” and “phenomenal” thanks to strong consumer balance sheets and vaccinations. Supply chains are still disrupted and there are significant inflation pressures.
Animal spirits are driving momentum across the economy, especially in capital markets. There’s hundreds of billions of dollars waiting to be invested via vehicles like SPACs. Valuations are extreme, yet they are justified by low interest rates. Meanwhile demand is exceeding supply in industries like semi-conductors, housing and transport. Companies are citing inflationary pressures. But the Fed and Treasury are united behind continued stimulus. “We have the tools to deal with that risk.”
Succinct Summary: The economy continues its two speed recovery, but there are some signs that growth may be slowing. Even companies that benefitted from the pandemic, like Netflix, are seeing the after-effect of demand that was pulled forward to earlier in the year. Elections will be a key source of uncertainty in the coming weeks. And COVID infections are stubbornly high. But consumers are going crazy at home.
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Succinct Summary: The economy was rebounding in May and June, but the recovery seems to have stalled out as infections have rebounded. CEO commentary was particularly negative last week. Business leaders are rapidly losing confidence and do not see a V-shaped recovery materializing. There’s a sense that government stimulus appears to be the only thing propping up the economy and it’s creating distortions in unemployment and financial markets. Still (perhaps because of this stimulus) the hot housing market suggests that consumers may not actually be in such bad shape after all–just spending on different things.
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