The U.S. economy is showing signs of emerging from the winter frost of the coronavirus pandemic that set in at the end of last year, but that doesn’t mean growth is going to heat up quickly.
The first flurry of economy signposts for January showed the thaw is underway.
Manufacturers, for their part were already ahead of the curve. They ramped up production for the fourth month in a row in an effort to keep up with rising demand for their goods.
More good news is likely to come this week. Consumer spending, one-third of which reflects retail sales, is all but certain to show a healthy increase in January after two straight declines when the data is published next Friday.
New orders for durable goods in January — computers, appliances, furniture and the like — could also show a sizable gain. Manufacturers are investing more to rebuild low inventories and get ready for what they expect to be a stronger increase in sales later in the year.
The economy still has plenty of shackles, however.
The number of people losing their jobs each week, for example, is still running above 1 million. That’s been the case since last May.
There’s no way the economy can get back to the way it was before the pandemic struck in March 2020 unless most people return to work. But that’s going to take quite awhile with more than 10 million unemployed Americans still unable to find a job.
To keep the economy going until then, the Biden administration is aiming to pass a nearly $2 trillion stimulus bill within the next month. The bill is expected to include an extension of emergency benefits for the unemployed.
The huge amount of money Washington has plowed into the economy, however, might create problems of its own.
Investors are growing more worried about a surge in inflation caused by massive government spending and easy-money policies by the Federal Reserve. Bond yields have risen from record lows, as have mortgage and other rates.
Is the U.S. really in danger of high inflation, 1970s style? Hardly. Inflation has been low for years owing largely to fierce global competition for labor and production — and those trends aren’t going away.
“There is no evidence that level of demand will create inflation that did not exist beforehand,” said Steve Blitz, chief economist of TS Lombard.
Yet the fear of inflation itself can act as a brake on the economy. The Fed could be forced to raise interest rates sooner than it would like or investors could flock to bonds and kill off a bull market in stocks that has pushed equities to record highs.
Those problems are probably still well into the future, but they are already having an effect now.
What could really become a problem is if those worries about inflation jump from Wall Street to Main Street. So far there is little indication of that.
Surveys of consumer confidence and consumer sentiment, both due this week, have shown that Americans expect somewhat higher but still fairly low inflation in the months ahead.
They are less confident about the economy, but the increasing rate of vaccinations could start to turn the tide soon.