By Joe Higgins, Quest 4 Quality
Economists worry about every bit of data that comes out of the Commerce Department, the Bureau of Labor Statistics, or the Federal Reserve. Is inflation going to deliver the final blow to the recovery? Will the Delta variant overwhelm the U.S. with a massive surge? Will appliance manufacturers ever get out of their supply chain issues? There are no easy answers in today’s crazy world, even though our current financial news is some of the best we have seen in decades.
This year’s rebound from the 2020 recession has been remarkable, our economy grew by over 6% last quarter, and the Fed believes we will see similar growth in Q3, around 5.8%. There is nothing in the past 20 years even close to that level of expansion.
There is little to worry about right now. We have an extraordinary jobs market, with over 10 million positions open, and wages are rising. The stock market is at all-time highs, and after this quarter’s earnings season, it is poised to move even higher. Housing has seen historic gains in pricing, and home equities are at record levels. The Federal Reserve is hinting at holding interest rates near zero to at least next year to boost the economy and BrandSource dealers have seen growth in volume and profitability at levels unheard of in our industry.
Okay, don’t get me wrong, I know I have a reputation as an optimist, but I can find things that concern me. Inflation, stagflation, worker shortages, supply chain issues, and now the rapid spread of the Delta variant, each of these issues could bring a halt to our overheated economy.
So how should we see our current economic environment? Let’s view the glass as half full with the understanding that we are not in a post-financial crisis. Right now, American consumers have an unprecedented amount of money in savings accounts. They have canceled trips, airline bookings are down 26%, and hotels booking dropped 19%. Cocooning is back due to the Delta virus and sprucing up our homes is still in style. Many economists believe that this is the new normal. According to Zillow’s research, consumers feel more attached to their homes than ever, as home prices rise.
Let’s walk through my scenario. The virus has restricted Americans for more than a year as of this writing. We watched in June when it appeared things were returning to normal, and then consumers went on a spending spree. Corporations are investing in capital goods that will meet this exorbitant demand now and in the coming years. This all means that we should see continued growth in goods and services and marks a significant period in America as our economy expands beyond expectations.
Consider the multiplier effect, an economic phenomenon where specific input, like purchasing a home, causes an equal or larger output. For example, a family buys a house, which leads to sales of furniture, appliances, and electronics. Or you remodel to some degree which includes flooring, plumbing, and lighting. Each investment will spur more investments, and that is the multiplier effect. This is precisely where our economy is today as investment produces more asset purchases and drives higher levels of growth.
Our job formation numbers have been at heights never seen before, and workers are opting for better jobs with more income. This will lead to more spending and wealth for America’s middle class.
And I want everyone to consider this, the rapid rise in inflation is an indicator of strength in our economy and not something to be discarded. We have been trying to get inflation near 2% for ten years, today’s increase is an indication that the economy is expanding and not stuck in a rut. To be fair, even Fed Chair Jerome Powell said that current inflation levels are a “cause of concern,” but he also does not believe that the current pace will be sustained.
The bottom line is simple, imagine what our economy would look like if we didn’t have the massive issues restraining both production and consumer spending. Once we clear the impact of restraints and factories return to normal and the virus recedes, consumers can go out without fear and spend freely. Americans are trying to buy cars and trucks today with little luck, they are waiting months to get furniture or appliances. I believe a new day is dawning in America, and I am optimistic about our future.
Joe Higgins is a 42-year veteran of GE and Whirlpool Corp. who brings his experience to bear as a business consultant, public speaker, AVB keynoter and YourSource News contributor. Visit his website, Quest 4 Quality with Joe, at www.q4qwithjoe.com.