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An Economic Update

By Leonard Steinberg

As we head into the final month of 2021, I thought it might be a good time to do a quick overview of where the US economy stands.  Yes, the economy does fuel real estate markets (and vice versa!) and plays an important role in what the future might hold for us in the real estate world. Here are some important touch points:


1.  JOBS. Without jobs and incomes, it's almost impossible to buy homes. When people are jobless, they pose a big stress on local and federal coffers for support. Last week there were 199,000 initial jobless claims — the lowest since 1969.

2.  SUPPLY - Wholesale inventories were up 2.2%, a notable improvement and a sign that the inventory shortages may be easing.


3.  THE DEFICIT: The trade deficit is shrinking: we went from a record-setting, close to minus $100 billion, in the high 90s, to minus $82.9 billion, a notable improvement.

4.  INFLATION: This has surged in the past year and surged higher, but not as high as economists expected. It is now annualized at 6.2%, the highest in decades. Energy costs have soared fueled by OPEC cuts and some US Government policies. Price-gouging is in the mix too.


5.  SPENDING. With almost 70% of the US economy reliant on consumer spending, things keep improving: Americans' spending throughout October was stronger than forecasted. Retail sales increase 1.7% in October, Core retail sales accelerated 1.6% and manufacturing production rebounded 1.2%. Sales soared 16.3% year-on-year in October and are 21.4% above their pre-pandemic levels. (Reuters)


6.  US GDP GROWTH:  Morgan Stanley economists boosted their estimate for US 4th quarter growth to 8.7% from 3% this week, citing "a wealth of data" that showed fresh strength throughout the economy.  The Federal Reserve Bank of Atlanta's GDP Now tool, which uses data releases to adjust its estimate for current-quarter growth, rose to 8.6% on Wednesday from 8.2%.


7.  The US is experiencing labor shortages that are causing supply chain delays as demand has soared. This is also causing rising costs and inflation. Where are all the workers? There are many explanations why the US is experiencing a shortage in labor which is driving labor costs higher:

* Covid related issues such as early retirements, those choosing not to work with bigger savings, people looking to do different jobs, health fears, childcare costs took a chunk of workers out of the workforce. Amongst the almost 800,000 who perished from COVID, many were working age.

* Lack of immigrant workers: The Census Bureau estimates that about 1.07 million people immigrated on net to the US in 2016, while only about 480,000 people immigrated in 2020. Reduced immigration has had its desired effect by raising US worker wages…. but now that is fueling inflation via labor shortages. Net international migration declined each year between 2017 and 2020. The US would have added about 2.1 million immigrants over those years. Many construction jobs are done by immigrants. According ACS the number of immigrant workers in US construction approached 2.8 million in 2019, accounting for 24% of the construction workforce, slightly below the 2016 record high share of 24.4%. Construction, transportation, warehousing, hospitality, and personal service businesses like salons and dry cleaners are industries currently facing the worst labor shortages.  (Business Insider)
* Trade tariffs implemented in 2018 were designed to protect US industries and jobs. They also boosted the cost of numerous materials and labor costs. Wages rose notably starting in later 2018/19 planned. Those higher costs have been passed on to the consumer by most industries.

 

8. The DOW, NASDAQ and S&P 500 are at record highs fueling investor confidence. Many fear assets are over-valued, always a healthy thing to avoid irrational over-exuberance!

 

9.  SAVINGS: Americans were saving at an annualized rate of $1.322 trillion in October, compared with $5.764 trillion in March, when a fresh round of stimulus started reaching bank accounts. 

 

10.  US DEBT is up past $27 trillion, up from $19.5 trillion 5 years ago. That’s up close to 40%!

 

Altogether, the above speaks well for an economy in full recovery mode. There are many challenges though. Spending, inflation and debt are way up, and but overall rates should remain relatively low and demand strong. The above was mostly sourced from the Wall Street Journal, Barrons and Reuters.

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