It’s been great to see the economy reopen, releasing a tremendous surge of energy. But anxieties remain: Will the economy overheat? Are we on a course toward runaway inflation? Will the workforce return to its former size? While these are all good questions, current worries about the economy should be kept in context. These doubts are only arising because of a phenomenal rate of recovery.
The challenge before us is sorting the transient effects from more permanent changes to the economy. We continue to believe the foundation is in place for an historic year of growth, and any complications, like elevated inflation, will prove transitory. We also cannot entirely discount the risk of a renewed wave of infections that causes more lockdowns, but the effectiveness of vaccines against new variants thus far makes this less of a worry.
Influences on the Forecast
- The U.S. added 559,000 jobs in May, with the unemployment rate declining to 5.8%. While the absolute gain is high, the widespread reopening had raised hopes of even better jobs growth. We expect this to be the first in a string of high employment readings, leading to continual improvement in the labor market.
- Details of the employment report were a mixed bag. Hiring was strongest in pandemic-damaged sectors including hospitality and child care, and wages grew broadly by 2.0% year-over-year. However, 7.6 million people remain sidelined, and the labor force participation rate declined slightly.
