August 10, 2021

Small business optimism fell  2.8 points in July to 99.7 after having risen 2.9 points in June.

Chief Economist William Dunkelberg said, “Small business owners are losing confidence in the strength of the economy and expect a slowdown in job creation.  As owners look for qualified workers, they are also reporting that supply chain disruptions are having an impact on their businesses. Ultimately, owners could sell more if they could acquire more supplies and inventories from their supply chains.”

The NFIB noted that a net 46% of owners reported raising average selling prices in July

Certainly the demand side of the economy is humming.  The  Delta variant is accelerating amongst the unvaccinated however the death rate remains unchanged.  However, consumers are spending freely and are much more interested in getting back to their lives.  Business people are hiring as quickly as they can..  Consumers are also awash with available cash to spend given the $1.9 trillion fiscal stimulus package that was passed in March.  The housing sector is expanding rapidly as demand far exceeds supply.  Ditto for the manufacturing sector which cannot keep pace with the inflow of orders.  As we progress through the summer the economic data will remain solid. At that time, business and consumer confidence will rise, consumer spending will accelerate — particularly so for bars, restaurants, hotels, airlines, etc.  Manufacturing sector will climb as well.

However, supply constraints are becoming more evident.  The shortage of chips has hindered the pace of car sales but caused used car prices to surge.  Labor constraints are forcing businesses’ to scramble to find enough workers.  That is particularly true in low paying industries like restaurants and bars and retail  where some of those workers laid off last year may be reviewing their options and are seeking employment elsewhere.  Part of the problem is that generous unemployment benefits are encouraging workers to remain on the sidelines until those benefits expire in early September.  That is not halting GDP growth, but it is acting as a brake.

We expect to see 8.9% GDP growth in the third quarter, and 10.5% GDP growth in Q4.

When demand exceeds supply prices rise and that is becoming increasingly evident as home prices have climbed 12% in the past year.  The CPI jumped sharply again in June.  For the year we now expect the CPI to rise 5.9% this year as energy prices have rebounded.  The more important core CPI is expect to rise 5.3% this year and 3.7% in 2022 compared to a 1.5% runup in 2020.

Stephen Slifer


Charleston, SC