After a growth in the first half of the year that was well above forecasts, there are many questions as to what will happen for the rest of 2021. Even those who should be providing answers are not taking a very clear stand. Fed Chairman Jerome Powell took the center stage at the Jackson Hole policy forum at the end of August, when he was expected to give more precise deadlines for tapering or even raising interest rates.
However, his speech dashed these hopes. The two main elements on which he was basing his timetable, inflation and employment, are sending unclear signals.
Inflation, is it really just transitory?
First, inflation: Jerome Powell maintains that it will be transitory. The Delta variant of the Covid-19, which is becoming increasingly widespread in the United States, but especially in countries further up the supply chain, is likely to keep upward pressure on prices. If the Fed Chairman ends up being right, the question is how much longer this transitional inflationary period will last. Caution is compelling companies to anticipate a stronger price increase and take measures to reduce its effect on the bottom line, for example by raising sales prices. This could lead to a more prolonged inflation.
Disappointing employment numbers in the US
As for American employment, it has still not returned to the situation before the outbreak of the pandemic. In August, only 235,000 jobs were added, compared to the 720,000 expected by economists. The sectors most exposed to Covid-19, which have been driving hires in recent months, have been reluctant to recruit in the face of the rising Delta variant. The data released on Friday, if confirmed over the next few months, could push the tapering deadline into next year.
Slow down in the US
On September 2, the Fed’s mathematical model for calculating annualized GDP growth (seasonally adjusted annual rate) revised its forecast for the current quarter to just 3.7 percent, down from previous estimate of 6.3 percent. Confidence is still largely in positive territory, but it too is pointing to a slowdown in growth. Despite the
fact that order books are filling up with new orders, the manufacturing PMI index is at a four-month low of 61.1 points. The slowdown is stronger in the services sector, with only 55.1 points. A score that is hardly higher than that of December 2020.
A welcome delay in Europe
Europe is still lagging developments across the Atlantic, which is positive news at this point in time. At the beginning of August, several economists revised their forecasts for eurozone GDP in 2021 upwards. According to the OECD, for example, growth is expected to reach 4.6%, which would be a record high since its creation two decades ago. Unemployment has not yet returned to its pre-pandemic low, however, the
7.6% rate in August marks a further decline, narrowing the gap to 50 basis points (bps). According to first estimates, inflation reached 3% (+80 bp) in August. But for the ECB to intervene, it would have to remain above the 2% target on a sustainable basis. The manufacturing PMI also fell in Europe, but remains higher than in the US, at 61.5 points and Atlantic. Clearly, the industry is not immune to the problems that are
affecting the world, including component shortages that are limiting production capacity and rising raw material prices. Services still benefiting from the effect of re-openings thanks to the progress of vaccinations, and progress further on the July score, at 59 points. Faced with the threat Delta variant, vaccination campaigns seem to be paying off.
Oil prices underpin concerns
These new concerns are also reflected in an oil price that has interrupted its upward movement, and is unable to sustainably rise above $70 a barrel for WTI. But its current level still underlines the fact that this is only a slowdown. The economy is still growing. One of the crucial questions is at what point will it exceed the prepandemic level, and in which parts of the world.
