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Federal Reserve Governor Lael Brainard in her remarks to the Economic Club of New York indicated that economic growth is expected to be the strongest in decades, fueled by fiscal support and pent-up savings accumulated during the pandemic. However, there is the potential for growth to moderate if higher-income households return to pre-pandemic consumption levels. Brainard again reiterated that the sharp inflationary increases are expected to be temporary and are attributable to sectoral supply-demand imbalances. Core PCE inflation is estimated to be 2.4% in April after adjusting for base effects. “I am attentive to the risks on both sides,” she said, and “I will carefully monitor inflation and indicators of inflation expectations for any signs that longer-term inflation expectations are evolving in unwelcome ways.”
The Federal Reserve’s May 2021 Beige Book economic conditions summary, prepared using data collected on or before May 25th, found economic activity expanded moderately in all Districts. Despite shortages of materials and labor, factory output increased. Low mortgage rates continued to fuel strong demand for new construction, as purchases outpaced build capacity. Demand for professional and business services increased, while demand for transportation services was exceptionally strong. Two-thirds of the Districts reported modest employment growth. Many firms had difficulty hiring new workers, preventing some of them from increasing output. Selling prices increased moderately, while input costs rose more quickly as supply chain disruptions intensified cost pressures. Strengthening demand allowed some businesses, particularly manufacturers, builders, and transportation companies, to pass through much of the cost increases to their customers.
The U.S. Bureau of Labor Statistics reported the unemployment rate dipped slightly in May to 5.8% as compared to last month’s 6.1% - 559,000 jobs were added, beating April’s revised total of 278,000. Employment in May was still down by 7.6 million jobs as compared to pre-pandemic levels, with 9.3M remaining unemployed. Gains were reported in leisure and hospitality (+186,000), public and private education (+144,000), and in healthcare and social assistance (+46,000). Construction employment was down slightly (-20,000). The labor force participation rate was little changed at 61.6%, still down from 63.3% in February 2020. The number of persons not in the labor force who currently want a job remained unchanged at 6.6M, the figure is up 1.6M over February 2020.
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