“It is not that there is no longer anything to be concerned about as far as the economy is concerned, but the constant worries about whether the impact of the recession would fade seems to be ending. . . . The aggressive recovery predictions that were dismissed a month or so ago are now seen as the most likely.” This optimistic introduction leads February’s Industrial Heating Equipment Association’s (IHEA) Executive Economic Summary.
There are three factors that account for this enthusiasm, the summary reports. The first is the acceleration of vaccine distribution. “The US is now ranked number five in the world in terms of numbers vaccinated (behind only a few Asian states like Japan and Taiwan).” This has helped to reduce pandemic protocols. The second factor is that consumers have money and are willing to spend it. The summary states, “There is an estimated $6 trillion on the sidelines between consumers, investors and the business community. The consumer alone sits on over $2 trillion.” And finally, the third factor is tied to the money that will be infused into the economy by the $1.9 trillion stimulus/rescue plan.
But, there’s that “what if,” hanging out there. The report cautions, “There is always a caveat when talking economics and that stimulus money is behind some of the trepidation regarding the future of the economic growth pattern. The risk from the stimulus is that it will overheat the economy and trigger a serious burst of inflation. If that surge in prices is dramatic enough, it could provoke the Fed to hike rates and start to put a damper on the growth we are starting to see.”
There are three prime motivators for inflation. The first one, wage inflation, hasn’t been an issue since there are still millions of people out of work. The second motivator, which has been manifesting dramatically is the price of commodities. They have been rising quickly–think oil and lumber prices. The third motivator is the money supply issue which could potentially lead to much angst. “The US economy is about to get hit with nearly $2 trillion just when there is substantial growth underway. This has the potential to set off a cycle of money chasing money. There will be a substantial part of the consumer population that will see some of this money and will be eager to spend it. If there is too much demand and not enough supply the price of things will go up.”
In conclusion, it will be interesting to see the response from the Fed–currently, there doesn’t seem to be a desire to hike rates– as well as the spending of the consumer. Will they continue to spend on services or for long-desired products? Hopefully, there are economic sunny days ahead.
Check out the full report to see specific index growth and analysis which is available to IHEA member companies. For membership information, and a full copy of the 12-page report, contact Anne Goyer, executive director of the Industrial Heating Equipment Association (IHEA). Email Anne by clicking here.
