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04.16.2021 by David Robinson

US Economic Growth and Potential Speed Bumps (Inflation and J&J Vaccination)

Picture the US economy as a car heading down the highway. The Fed sits in the driver’s seat. Its easy money policies, along with fiscal stimulus and widespread vaccinations, cause the car to accelerate (i.e., the economy to grow). Jerome Powell, the Federal Reserve Chair, even noted that the US economy is at an “inflection point” with faster growth and more job creation ahead. CNN Economists agree, saying that 2021 may be the best year for economic growth since 1984. CNBC

So, nothing to worry about? Not exactly, to quote the old rental car commercial punchline. There are always concerns and risks. We say enjoy the ride but advise keeping our eyes on the road ahead. What might be the “speed bumps”? An immediate threat would be that the fast pace of vaccination is derailed. The potential of excessive inflation is a second threat. This brings us to the recent Johnson & Johnson vaccine news and inflation report.

J&J Covid Vaccine Pause: The Biden administration has chosen to suspend, pending further study, the distribution of the J&J vaccine. Wall Street Journal What triggered the suspension was the report of six blood clots that occurred in over 6 million vaccinations. Despite the relatively low incidence of side effects, albeit quite serious, the administration decided that the benefits of a pause outweighed the negatives. Boston Globe We expect the distribution to resume once the medical community is informed and prepared to manage the risk. Damage to confidence in the J&J vaccine will be a lingering issue and necessitate a push to ramp up the distribution of the Pfizer and Moderna vaccines which require two shots and colder vaccine storage. Depending on how long the pause continues and whether other vaccines could take up the slack, this would be a significant setback in the fight against Covid-19 and efforts to reopen the economy to its full extent.

Inflation Concerns: After years of ultra-low US inflation, expect to see both higher inflation and market sensitivity to signs of inflation risk. Inflation, beyond tolerable and healthy limits, would force the Fed to begin tapping the car brakes to slow the economy by raising short-term rates. Powell says that it is very unlikely that the Fed would begin raising rates this year. CNBC He would "like to see it on track to move moderately above 2% for some time. When we get that, that's when we'll raise rates." What then to make of the March inflation data, reporting year over year 2.6% consumer price index increase and a seasonally adjusted 0.6% increase from February? Wall Street Journal Although the inflation increase was slightly more than expected, with rising gasoline prices accounting for much of the increase, most economists and market observers are not unduly concerned for the time being. CNBC New York Times

Global Semiconductor Shortage: Semiconductors are critical components of a long list of manufactured goods including smartphones and cars. And they are in short supply relative to demand. The US was once a leading chip manufacturer, but two companies, one from Taiwan and one from South Korea, manufacture over 70% of the world’s semiconductors. CNBC While on friendly terms with these countries, the US has to rebuild its own chip manufacturing capabilities as quickly as possible. Look for the Biden administration to address this strategic capability gap by proposing subsidies for building additional US chip manufacturing plants. Washington Post

Infrastructure Negotiations Underway: We expect to see an infrastructure rebuilding plan pass Congress later this year, but we are in the early innings of this game. President Biden has his wish list and ideas for how to pay for it, but there will be enormous pushback on corporate tax increases. Biden has other options, including taxing the highest earners and a gasoline tax. CNBC Meanwhile, Biden is engaging with a bipartisan group of lawmakers this week to sort through options in search of a viable path forward.

Covid-19 Cases Higher in Maine and New Hampshire: Maine’s 14-day average case count is up 72% with big spikes in Portland. New Hampshire’s is up 20%, which is better only in comparison. New York Times Interactive Tracker The increase is especially alarming in Maine where young people are being infected at alarming rates. The Maine CDC is concerned about Covid-19 variants. Press Herald And just when we thought it was safe to go back into the water (so to speak). For those who have been fully vaccinated, we like the advice given to a client/friend by their doctor to “live your life but be smart.”

Introverts and the Pandemic: We have seen some interesting stories that speculate that introverts may find it more difficult to return to “normal” than extroverts. The theory is that introverts find social engagements more stressful, as compared to extroverts who are energized by direct contact with others. Washington Post I recommend the following linked article for a more nuanced discussion of this question and a broader discussion of personality theory in the pandemic context.

A Quote to Consider:Letting go of yourself is the simplest way to get closer to others.” Mickey Singer

Worthy Short Takes:

  • What If We Could Slow the Rate of Aging? Some species age so slowly as to make age differences practically imperceptible. It may not happen in our lifetimes, but the research is on to find therapies to slow cell senescence. Wall Street Journal
  • Maine Lobstering: A Maine lobsterman has a popular TikTok account featuring one-minute videos about lobstering. It sounds like fun, assuming I can get past my general aversion to social media. Boston Globe
  • Millennials Are Ready to Buy Homes: Almost 5 million millennials will turn 30 in 2021 and many will want to buy homes. Statistically, they are migrating south and west. Axios
  • Cork O’Connor Mysteries by William Kent Krueger: I recommend this series to mystery lovers without reservation. It is set in northern Minnesota and has it all (i.e., plot, character development, and place). It will take me a while, but I predict that I will read all 18 in the series, perhaps with some time off for good behavior as I go along.
  • Nine and Dine? The golf industry has thrived during the pandemic, as a relatively safe recreational activity that is social and gets you outside. But not everyone wants to play 18 holes, and the industry has noticed. One theory as to the time pushback is that a shorter round of golf matches better with our natural time frames for other forms of entertainment and social dining. Wall Street Journal


Feel free to send us feedback on any topic, suggestions for improvement, or to forward the notes to anyone who might be interested.

As always, thank you for reading. Stay safe and be well. We look forward to hearing from you and connecting.

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