“The near-term economic outlook will largely depend on the US and the rest of the world’s success in inoculating its populace from the virus while rebuilding the economy.”
The second quarter of 2021 was defined by robust consumer demand as the economy kicks back into high gear, as well as a struggle for domestic and global productive capacity to meet that demand. This combination saw an increase in output, driven by record-breaking private consumption, as well as inflationary pressure. Prices, especially manufacturing inputs, dramatically increased in Q2, partially due to productive capacity and supply chains lagging the recovery in demand. Employment has slowed in its recovery, stubbornly trending at the 30-year historical average. Though the country and the rest of the world are recovering, albeit at varying speeds, from the pandemic, the economy continues to underutilize its capacity, both in the United States and abroad.
The defining economic challenge of the near term is balancing an economic recovery with inflationary pressure. Driven by a successful vaccination rollout and economic reopening, the US has seen a positive phase shift in its recovery, particularly on the demand side, which many countries have yet to fully realize. The US trade deficit, which ballooned during the pandemic, is partially due to foreign consumption struggling to catch up.
Despite cause for optimism in the first half of 2021, we are not out of the woods yet regarding COVID-19. Major challenges and uncertainties remain. Vaccination rates have begun to plateau, as a sizeable portion of the population, nearly one third, has access but no interest in receiving a vaccine. This has led to a resurgence in cases, driven as well by more virulent variants of the virus, such as the Delta and Lambda variants. The near-term economic outlook will largely depend on the US and the rest of the world’s success in inoculating its populace from the virus while rebuilding the economy.