LUNDGREEN’S GLOBAL PERSPECTIVE
MY main scenario for the US economy is a prospect of strong growth, which follows the general expectation in the financial markets. Although currently, I experience a challenge of a different dimension when the US economy goes under the microscope. Because now, the world’s largest economy must return to “normal,” but we all know that there will be a “new normal,” where the great uncertainty is whether this “new normal” will make noise in relation to the expectation of the strong economic recovery in the United States.
The positive expectations for the continued growth of the US economy are confirmed, as unemployment rate is already down at 6.1 percent again. It is a reasonable indicator, but the US economy is different compared to many other economies, so one cannot simply judge the temperature based on one figure. This development, combined with the continued reopening in large parts of the United States, led the majority of economists to believe in a new creation of jobs outside the agricultural sector of as much as 1 million new jobs in April. Instead, the number was a disappointing 266,000 new jobs, and at the same time, the media are full of stories about American companies, both large and small, not being able to find people to hire — here, one can ask the question: Where have all people gone?
I do not want to use just one piece of data as a basis for changing all predictions, but there are also other pieces in the puzzle that make me listen extra attentively to changes in consumer and household behavior.
One could conversely choose the argument that 65 percent of the jobs lost during the pandemic have already been regained, and remember that before the coronavirus disease 2019 (Covid-19) crisis, unemployment was historically low. In addition, it must also be considered that obtaining such a low unemployment rate requires a smoothly functioning society. Not all schools and childcare facilities have opened yet, and public transportation still operates at a reduced level in certain areas of the United States. This alone prevents some people from participating in the labor market, and it is a discussion whether the financial aid for households is so high, that some people choose to stay at home instead of finding a job as soon as possible. If one adds all these factors together, I could well imagine that it will be September before the US labor market is back at full speed, though this does not necessarily mean that everything will be the same as pre-Covid-19.
For a long time, it has been clear that for a period in the future, there will be more work done from home, which also in the United States, has led more people to purchase their own homes, or perhaps the desire to buy was just a collective reaction during the crisis. My consideration about this development is whether it means a change in lifestyle for so many households, that it starts to be noticeable in the labor market?
As an example, the number of freelance workers has obviously increased in the United States during the crisis, but in the future, could a freelance job possibly remain attractive if a partner in the household also partially works from home? Financially, this may mean a decrease in the household’s disposable income, but in return, the household may experience a positive change in quality of life.
Another development that I have a very specific focus on is the workforce supply and wage levels in the lowest paid part of the service sector. I’m curious about whether employees in the service sector are simply returning back or should they be lured with a higher salary?
When one considers that the US economy is a service sector economy and how large a share the service sector makes up, then this is significant. Based on the development in the first phase of the reopening of the US economy, I will not be surprised by wage increases among many low-paid employees in the service sector in the United States. Probably enough to increase overall purchasing power in the United States and maintain the higher inflation level for a longer period than immediately expected.
The service companies that are very wage-heavy could therefore be challenged on earnings, but the overall increase in purchasing power among people with low-paid service sector jobs should please Wall Street, despite the inflation risk. This would be a development where the main scenario with strong growth is maintained, but where a Covid-19 effect still moves an underlying development surprisingly much, and is an example of new possible developments, which I currently pay extra attention to.
Peter Lundgreen is the founding chief executive officer of Lundgreen’s Capital. He is a professional investment advisor with over 30 years of experience and a power entrepreneur in investment and finance. Peter is an international columnist and speaker on topics about the global financial markets.