July 13, 2021

Small business optimism rose 2.9 points in June to 102.5 after having declined 0.2 point in May..

Chief Economist William Dunkelberg said, “Small businesses optimism is rising as the economy opens up, yet a record number of employers continue to report that there are few or no qualified applicants for open positions.  Owners are also having a hard time keeping their inventory stocks up with strong sales and supply chain problems.”

The NFIB noted that the net percent of owners raising average selling prices increased seven points to a net 47% (seasonally adjusted), the highest reading since January 1981

Certainly the demand side of the economy is humming.  The  pandemic seems to be well in control for vaccinated consumers although the Delta variant is accelerating amongst the unvaccinated.  Consumers are awash with available cash to spend given the $1.9 trillion fiscal stimulus package that was passed in March.  The housing sector is on fire 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 9.0% GDP growth in the second quarter, and 8.0% GDP growth for the year.

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