How can our economy get better

That experience argues strongly that sustained inflation is unlikely. So far, the US economy has experienced inflation in a very narrow group of goods and services, mainly those in sectors directly affected by the pandemic. Inflation requires that such price spikes stimulate higher prices in other sectors, and that the need to raise prices be built into the economy. The pandemic has wreaked havoc with business plans, and no area of business operations has been more chaotic than inventories.

Could you find toilet paper last April? That was only the tip of the iceberg. Some businesses found themselves with warehouses filled with unsalable goods, while others wondered how to ever keep a stock of key parts vital to their operation.

The change in private inventories contributed to huge swings in GDP. In the first two quarters of , inventory drawdown subtracted about 1. And the impact is far from over: Inventories are likely to continue to play an outsized role in short-term economic outcomes over the next few years. Inventories, when used successfully by businesses, create a buffer between shocks to production and demand—and they have been playing that role successfully. But that matters for future production, as well.

Auto manufacturers and retailers will need to rebuild their stocks of cars, and that will keep production going in the future even if sales weaken. In fact, many economists consider the ratio of inventory stocks to final sales to be a signal about future business behavior. If inventories are low, demand is likely to grow as businesses seek to replenish their inventories; if inventories are high, demand is likely to fall because businesses will use existing stocks rather than ordering new goods.

In aggregate, the ratio of inventories to final sales in the second quarter, at 2. But that hides some significant inventory imbalances. While auto inventories are low, inventories at clothing stores and general merchandise stores jumped in the second quarter.

Thanks to Lester Gunnion , who played a key role in developing and producing this forecast. The Deloitte Global Economist Network is a diverse group of economists that produce relevant, interesting, and thought-provoking content for external and internal audiences.

The network's industry and economics expertise allow it to bring sophisticated analysis to complex, industry-based questions. Publications range from in-depth reports and thought leadership examining critical issues to executive briefs aimed at keeping Deloitte's top management and partners abreast of topical issues.

United States Economic Forecast has been saved. United States Economic Forecast has been removed. Please enable JavaScript to view the site. Viewing offline content Limited functionality available. Article 20 minute read 16 September United States Economic Forecast.

Daniel Bachman United States. Email a customized link that shows your highlighted text. Copy a customized link that shows your highlighted text. Copy your highlighted text. Share by email. Get the Deloitte Insights app. Share image. Or copy link Copy. Sectors Consumer spending The near-term outlook for consumer spending turns on two big questions: 1.

Will consumers spend down all those pandemic-era savings? When consumer services recover, what happens to durable goods? A host of factors combined to boost housing demand over the past year: Continued strong economic position of high-wage remote workers Growing expectations that remote work will persist after the pandemic Historically low mortgage rates Millennials moving into prime home-buying age 6 Residential investment weakened in Q2 but remains elevated and could receive a further boost in the short term.

Business investment By the second quarter of , business investment was slightly 1. Foreign trade Over the past few years, many analysts have begun to face the possibility of deglobalization. Government Policy Over the next few months, federal budget policy will revolve around four questions. They are: Will the bipartisan infrastructure plan pass? Headlines describing a trillion-dollar plan were perhaps not as accurate as they might have been, because about half the money was already allocated.

But it could improve the long-run performance of the US economy considerably. Speaker Nancy Pelosi intends on presenting the infrastructure bill together with the budget reconciliation bill for FY in the early fall. Can the Democrats pass a budget reconciliation bill? Some moderate democrats are concerned about the amount of spending involved. If as seems likely the budget reconciliation bill is not passed by September 30, can both parties agree on a continuing resolution to keep the US government funded?

The possibility of another government shutdown seems unlikely, but it could happen. And finally, will Republicans be willing to vote for a continuing resolution that includes a hike in the debt ceiling?

The Democratic leadership decided to avoid the safe approach of including a hike in the debt ceiling in the reconciliation bill which is designed to pass without Republican votes. Instead, they intend on including the debt ceiling rise in a continuing resolution, or perhaps as a stand-alone bill. Labor markets The conversation about labor markets has switched—and fast.

This explanation makes some sense, but there are reasons to doubt that it is the whole story or, perhaps, even the major part of the story. However, anecdotal evidence is strong enough to suggest that the unemployment insurance supplement is contributing to the problem.

But this will not be a problem in the future, as almost half of all states ended unemployment insurance early, and the entire program will end in September. Child care has prevented a significant number of people from reentering the labor force.

The good news is that this problem is on its way to being solved, with summer camps and day care centers reopening this summer, and schools likely to fully reopen, in person, in the fall. Delta, however, poses an additional risk; if child care disappears again, labor force growth will stall or even reverse.

Health remains a concern for people who are at risk of COVID, particularly those who cannot be vaccinated due to a high risk of complications. About half of the decline in the labor force is among people 55 years and older. Many of these people have probably retired, in the sense of expecting to remain permanently out of the labor force, but some can likely be enticed back with the right compensation packages and flexible working hours and conditions.

The inventory question The pandemic has wreaked havoc with business plans, and no area of business operations has been more chaotic than inventories. Show less. Show more. Endnotes To be clear: Voltaire was being sarcastic. View in Article The demand for dollar assets requires that the dollar be priced to allow assets to be supplied to the rest of the world via the current account deficit. View in Article The Federal Reserve has helpfully provided a full annotated list of borrowing facilities on its website.

View in Article Lawrence H. View in Article. Acknowledgments Thanks to Lester Gunnion , who played a key role in developing and producing this forecast. Cover image by: Russell Benfanti. Deloitte Global Economist Network.

Learn more. Related content. US Economic Forecast Article. United States Economic Forecast Article. More from the Economics collection. In that sector, employment is still down 1. In comparison to previous recessions, the COVID recession has been worse for the services sector relative to the goods sector. Consider the average outcomes across the four recessions from to , 18 months from when the different recessions began: employment in the service sector was 1 percent below its pre-recession peak and employment in the goods sector was 10 percent below its peak.

In contrast, as of August employment in the service sector was still 4 percent below its February level and employment in the goods sector was 3 percent below.

Over the summer of in some states, and in the first week of September in the remainder of states, enhanced UI expired. Note that the level of unemployment greatly underestimates the number of people who lost jobs during the pandemic. To be described as officially unemployed, a person must be actively looking for work; however, millions of people effectively have left the labor force since March but were eligible for the expanded UI benefits.

At the time that the emergency programs expired, there was a gap of more than 5. We project that gap to close only modestly through the end of this year. Fiscal support has helped people prioritize their health over labor market income, which was certainly one of the goals when the support was put in place in the spring of and when it was reauthorized several times. Nonetheless, we see no compelling evidence that the cancellation of those benefits so far has led to significant increases in aggregate employment Coombs et al.

On the other hand, the abrupt elimination of access to UI benefits for millions of people creates financial hardship for those who are unable to work owing to health risks or other constraints. Despite job openings being their highest since the end of the earliest available data , several factors are holding down employment gains.

One factor is that the share of workers quitting jobs each month is at a series high. As figure 4 shows, the quit rate generally moves with the job opening rate, since workers are more likely to switch jobs in a strong labor market. Moreover, in the current environment the composition of labor demand is changing, and workers may be taking time to move from temporary jobs they took during the pandemic. Taken together, record job openings, the slowness of job matching, and the depressed level of labor force participation has created wage pressure, particularly for workers in the service sector, for younger workers, and for workers with less formal education.

In addition to the depressed rate of job matching, also worrying is the lack of recovery in the labor force participation rate, which is the share of the population working or actively seeking work. That rate fell from 63 percent to 60 percent between February and April of last year, when nearly 8 million workers left the labor force. The participation rate recovered about halfway by June , but has remained stubbornly depressed since then.

Factors unique to the pandemic have disproportionately affected labor force participation among certain groups even if these changes do not meaningfully affect aggregate levels Furman, Kearney, and Powell For example, among mothers of elementary school—aged children—which is the demographic likely bearing the brunt of school closures Amuedo-Dorantes et al. Consequently, addressing the child-care crisis moves in the right direction but will not on its own make up the ground that has been lost in aggregate labor force participation.

Upward pressure on wages has been good news, particularly for low-income workers and workers in certain industries. As shown in figure 5, wages for those in the bottom quartile of the wage distribution are up 7.

That rate of growth is close to what that group experienced in , when the consensus held that the labor market was relatively tight. Some sectors have seen particularly strong wage gains. For example, over the past 12 months average hourly earnings in the leisure and hospitality sector have grown nearly twice as fast as the overall private industry average.

Other sectors seeing strong gains in hourly earnings include retail trade, transportation and warehousing, and financial activities. Price increases in recent months led to declines in real wages from March to June Those declines partly offset increases in real wages earlier in the pandemic for wage-earners in the bottom quartile, when inflation was soft and nominal wages were rising. In July and August real wages for that group notably accelerated.

Overall, from February to August real wages for the bottom quartile have risen 2. That is considerably below the rate we saw in when real wage growth was 2. Moreover, real wages are roughly unchanged for those in the highest quartile, in contrast to a gain of 0. Disposable personal income DPI, or total aftertax income in and so far in has been higher than if DPI had simply grown at its trend rate of the previous five years.

Since March of this year those benefits have come down sharply but remain elevated. Under current law, the boost to DPI should fully wane by early next year. See Alcala Kovalski et al. As a result of the significant boosts to DPI and restrained services spending during the pandemic, aggregate household saving has skyrocketed. In every month from March through April of this year, the rate of saving was higher than in the past four decades; in some months it was roughly double the previous post—World War II peak.

Moreover, home prices and stock market prices have surged, leading to large increases in household wealth. Those resources will help to finance the pent-up demand for forgone spending. Ultimately, households will view the increase in savings and wealth as financial resources to support long-term, relatively steady consumer spending.

After taking into account the enormous fiscal support provided to households in , the percentage of the US population in poverty, as measured by the Supplemental Poverty Measure SPM , fell from 12 percent to 9 percent figure 7. The two policies that had the most significant effects relative to earlier years, because they were the most changed from prior policy, were the expansion of unemployment compensation and checks to households. If Congress had not enacted relief for families, SPM poverty would have risen to Another factor behind the decrease in poverty was the relatively strong wage growth for those at the bottom of the income distribution who remained employed see fact 5.

Notably, those wage gains came on the heels of strong wage growth in and , when the tight labor market benefited lower-wage workers. In continued fiscal support—particularly the full refundability of and the increase in the child tax credit and increases to the Supplemental Nutrition Assistance Program SNAP maximum benefit—as well as the continued labor market recovery should help to lift households out of poverty. Sustained progress in reducing post-tax-and-transfer poverty as measured in the SPM is possible through making permanent some of the policies enacted to counter the COVID recession.

To help Americans struggling to make mortgage and rent payments in the midst of a sharp contraction in labor income in the spring of , policymakers put in place several relief programs.

Those programs initially took the form of foreclosure and eviction moratoria and later also included financial support. Delinquent mortgage borrowers experiencing economic hardships related to the pandemic, who had a federally backed mortgage, which includes mortgages backed by Federal Housing Administration, Veterans Administration, Fannie Mae, and Freddie Mac loans, were automatically eligible for forbearance through September 30, The government put in place help for mortgage servicers who are generally required to make payments to investors regardless of whether borrowers are delinquent.

According to the Federal Reserve Bank of New York, forbearance plans disproportionately benefitted low-income borrowers, especially those holding FHA-insured loans and those living in disadvantaged neighborhoods Haughwout, Lee, Scally, and van der Klaauw The federal eviction moratorium expired in August , although some states have extended such protections. With regard to the money that was distributed in the first quarter of , more than 60 percent of households who received aid had household incomes under 30 percent of typical incomes in their geographic area.

Nonetheless, the broader fiscal support and the partial recovery in the labor market has helped to reduce the number of people who are behind on their payments.

Three-quarters of the states reached their highest share of missed rent or mortgage between December and March USD billion: this is the estimated sum of corporate profits expected to be reallocated to governments as a result of the recent landmark international tax deal led by the OECD. Inflationary pressure in the global economy is stemming from a surge in demand accompanying the reopening of economies, which is pushing up the prices of key commodities, including fuel, metals and food.

Cost pressures are being amplified by supply chain tensions. Shipping costs, in particular, have risen sharply, reflecting strains in vessel and container capacity. G20 consumer price inflation is expected to peak in late — but the long-term inflation outlook will depend on inflation expectations and wage inflation. Venture capital investment in artificial intelligence technology increased fold between and This scaling up of AI cuts through all sectors of the economy, including transport, healthcare, business, digital security and others.

The transport sector alone saw USD 18 billion of VC funding in with mobility and autonomous vehicles taking centre stage in global efforts to scale up broader sustainable mobility drives. However, governments and other actors must think hard about how best to harness the power of technology with people in mind.

The OECD AI Principles focuses on human-centred values and nurturing trust — and can therefore support inclusive growth, sustainable development and well-being. Morocco Mozambique Moldova Myanmar.

Romania Russia Rwanda. Western Sahara Yemen Zambia Zimbabwe. Agriculture and fisheries Chemical safety and biosafety Competition Corporate governance Corruption and integrity Development Digital. Industry and entrepreneurship Innovation Insurance and pensions Investment Migration Public governance Regional, rural and urban development.

Chart of the Week: Climate. See more Data Insights.