This column is about the American economy and what it might look like for the next few years. It will focus on just two on the important unknowns, the workforce and inflation.
1.Is the workforce changing? The Covid pandemic has fostered a number of changes in the way people work and what they want from their job. For example, 56% of American workers “always” or “sometimes” worked remotely during the pandemic. We don’t know how many employers will insist that they return to the physical workplace and how many how many employees will be willing to comply five days a week, if at all.
The unemployment rate is still high at 5.9 % but 7.5 million jobs are going unfilled. In part that is because jobs and job seekers are not in the same geographic area. However , there are also millions of people who could but won’t take the jobs on offer. Many are seeking better working conditions and/or better pay. Many are seeking something different than they have done in the past or a more relaxed work schedule. Many of working age are not even looking for a job right now. As more people are fully vaccinated and the economy is re-opening, will the pandemic caused changes continue or revert to the pre-pandemic situation? We just don’t know
For Massachusetts specifically, a recent report from the McKinsey consulting firm contains some disturbing conclusions, but they are “likely” not “certain” :
“ Massachusetts’ post-pandemic economy will likely pave the way for permanent remote work, higher demand for e-commerce and more automation, potentially displacing about 25% of workers over the next decade… Massachusetts could see a move away from its “urban core” fueled by remote work and technological shifts. But the changing economy could spark a mass exodus of residents seeking lower costs of living and disproportionately hurt nonwhite, women and lower-income workers if they don’t get the proper skills training, affordable homes and more accessible child care.”
2. Will Inflation become a serious problem? One definition of inflation is “The rise in the general level of prices, often expressed as a percentage…” . That is, a lot of things cost more than they did in the recent past.
Inflation can be caused by a number of things. Here are two of them: The need for employers to offer higher wages and other forms of compensation tends to lead to higher prices. Also a shortage of workers can lead to some problems for the overall economy. For example, long distance trucking is a problem because there aren’t enough drivers to bring the rigs from one place to another. They tends to make goods more scarce and /or more expensive. In terms of supply train, the list of products that use computer chips is enormous. But Marketplace reports that manufacturers are waiting eighteen weeks to get them.
The Federal Reserve is not particularly concerned about inflation right now. It expects prices to rise 3.4 percent in 2021, but says that growth will slow to 2.1 percent in the following year and settle near its 2.0 percent target in the longer term. However, the Bureau of Labor Statistics report for June indicates an inflation rate of 5.4 percent. The Federal Reserve believes that this increase is temporary and notes that price increases have been concentrated in a limited number of products. For example the price of used cars is up 41.3%. The cause has been a shortage of new cars, which in turn has been caused by a shortage of the computer chips needed to make any modern car run. When there is a shortage of new cars , demand increases for used ones. The Fed anticipates the situation will correct itself as the supply chain for computer chips recovers from the disruptions attributable to from the Covid pandemic. Many leading economists disagree with the Fed. They are concerned that inflation might reach double digits as it did in the 1970’s driven by continuing supply train problems , massive deficit spending by the federal government and their anticipated unwillingness of the Federal Reserve to raise interest rates sufficiently and/or in time.
It is important to keep in mind that destruction caused by climate change; a resurgence of Covid or a similar pandemic; war, even if our country is not directly involved; and social/political upheaval could each cause numerous economic problems, including inflation. These causes may not be accounted for in the Fed’s econometric models or be controllable through government policy..
The future direction of our economy depends on many factors which are either fraught with uncertainty or operate outside of the economy as such. Well informed people may forecast one way or the other, but no one actually knows what the economy will look like in the next few years.