Five Predictions for Q2:2021

Hiring, inflation, spending, and travel will trend higher 📈

1. The U.S. will add more than 2 million jobs

Between April and June, our great nation will add about 700,000 jobs per month on average. If I’m wrong, I’ll still have a job since I own my business, and I won’t be laying me off. If I’m right, America will still be down by more than 7 million jobs since the pandemic began.

2. Inflation will surpass 2%, with commodity prices surging

Actual inflation has trended well below expected inflation since the pandemic began in early 2020, but we’ll see it pick up in the second quarter of 2021. Supply chains are already unsettled, not just by trade disputes, Brexit, and COVID-19, but by a big boat that was stuck in the middle of the Suez Canal.

With a tsunami of demand coming from global consumers during the months to come, shortages of many inputs will worsen and prices will be pushed higher. Some of this has already happened. Softwood lumber prices are up 80% over the past year,1 driving up the cost of building the typical single-family home by approximately $24,000.2 Iron and steel prices are up 22%, and overall construction input prices are up nearly 8%.3

3. Consumer discretionary spending will expand dramatically

This one is obvious. With the household savings rate bulked up by stimulus and the suppression of many spending opportunities, consumer spending will take off during the months ahead. Retailers would be wise to invest intensely in their inventories in order to take advantage of surging demand.

4. Leisure travel will quickly return to pre-pandemic levels

It’s been a long year (365 days). If you didn’t need a vacation before, you need one now, and you aren’t alone. Book your flights now. Make your hotel reservations now. People are itching to travel (itchiness, as far as I know, isn’t a COVID-19 symptom), and you don’t want to be left behind.

From March 14-20, U.S. hotel occupancy rates reached 85% of 2019 levels, which means that many people are already on the move.4 You saw the pictures from Miami Beach. In some places in Texas and Florida, where pandemic restrictions have been lifted and have stayed lifted, hotel occupancy is already above 2019 levels. Oh, and make your restaurant reservations, too. While reservations are still down about 25% from the same time in 2019, that will change quickly as more people are fully vaccinated.5

5. Business travel won’t

Leisure travel will likely return to normal levels this summer. Business travel won’t. During the week of March 25, TSA headcount numbers were down 37% from the same week in 2019.6 Even as pandemic-related restrictions are lifted, many businesses have learned that Zoom calls are easier and cheaper than flying across the country to meet face-to-face. So while business travel will pick up during the months ahead, it will be a long time before it is fully recovered. That means fewer people on their cellphones as you patiently wait in terminals. Enjoy!

Data Drops to Watch this Week

There’s lots of good economic data released during the first week of any month, and I’ll have another Substack post on the payroll employment data on Friday.

Tuesday: S&P/Case Shiller Home Price Indices

Wednesday: ADP Employment Data

Thursday: Weekly Unemployment Claims, Construction Spending

Friday: Payroll Employment

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The American Rescue Plan 101: Anirban Basu Explains the $1.9 Trillion Stimulus Package

I’m delivering a special webinar (I can’t help it) on Wednesday, April 7th at 1:00 EST, during which I’ll dive into the details of the American Rescue Plan, crack a few nonthreatening, sufficiently PG jokes, and answer any and all questions. I’ve given a couple thousand presentations over the years and this is the first one produced by our company, Sage Policy Group (exciting, right?). It’s limited to 500 attendees and you can kindly register at this link.

1

U.S. Bureau of Labor Statistics, Producer Price Index

2

National Association of Home Builders

3

U.S. Bureau of Labor Statistics, Producer Price Index

4

CoStar STR Data

5

OpenTable

6

TSA Checkpoint Travel Numbers