by Greg Valliere, AGF Management Ltd.
THE U.S. ECONOMY OBVIOUSLY is rebounding this summer (although the Atlanta Fed’s GDPNow second quarter growth forecast of 10.3% seems high, as usual). A perplexing question: if the economy is so great, why is the Treasury 10-year bond yield stuck at around 1.5%?
PART OF THE ANSWER, we suspect, is headwinds that are hindering economic growth in key sectors. Everyone knows about computer chip shortages, but here are three other headwinds that collectively may be slowing the economy:
1. Record Heat Wave: We usually don’t write about the weather, but you have to be astonished by what’s happening. All records are likely to be obliterated in the coming week in the U.S. west — an unprecedented heat wave is coming, undoubtedly leading to a worsening drought, water rationing, extensive wildfires and rolling blackouts.
Weather officials expect temperatures that will be above normal by 35 degrees or more next week — with Spokane, Wash. in the bulls-eye. In much of the Northwest, all-time records are likely, with temperatures perhaps nearing 110 Fahrenheit (43 degrees Celsius).
This next blast of heat comes on the heels of a historic heat wave that set nearly 4,000 records in the West last week. Phoenix hit at least 115 degrees for a record six days in a row, and Tucson topped 110 for a record eight straight days. Just as an ice storm can paralyze business, this incredible heat wave will take an economic toll (especially if blackouts spread in states like California}.
2. A Huge Attitudinal Shift on Work: Most of the focus this year on the labor shortage has been on whether unemployment benefits have precluded people from returning to work. But a more serious issue is a widespread rejection of retail jobs by people who see a low-paying dead end in the entire sector.
An astonishing 649,000 U.S. retail workers quit their jobs in April, the largest monthly number since the Labor Department began tracking this 20 years ago. An eye-opening piece on this trend in the Washington Post earlier this week produced the following conclusion:
“Some are finding less stressful positions at insurance agencies, marijuana dispensaries, banks and local governments, where their customer service skills are rewarded with higher wages and better benefits. Others are going back to school to learn new trades, or waiting until they are able to secure reliable child care.”
A hollowed-out retail work force may be one of the great legacies of the pandemic, as workers bolt after realizing that they have more options than low-paying jobs that have little upside. You see it everywhere — try finding a waiter or a store clerk; every retail operation is desperately looking for help, and sign-up bonuses are the norm.
3. The U.S.-Canadian Border Impasse: Pressure is growing on President Biden and Prime Minister Trudeau to begin opening up the border between the two countries — as restrictions on nonessential travel enter their 16th month.
Some small changes are to take effect on July 5, but it appears that the next review of a regulations won’t occur until July 21. This has infuriated residents on both sides of the border and has been a negative for a wide range of business,
including tourism (even though the shipment of goods is generally allowed).
Neither Biden nor Trudeau could come to an agreement on a border-opening timetable when they met in Europe earlier this month; their inaction has essentially ruined travel between the two countries for a second successive summer.
Trudeau wants at least 75% of Canadians to have at least one shot, with at least 20% fully vaccinated, before the border is opened up. That could take months, as global anxiety over the Delta variant increases — still another headwind that could shift the economic growth outlook from great to simply good.
The views expressed in this blog are those of the author and do not necessarily represent the opinions of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies.
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This post was first published at the AGF Perspectives Blog.
