“American households are flush with cash and they are ready to spend“– Paul Ebeling
The US Commerce Department has reported on GDP growth in Q-1 of Y 2021. That number showed the strength of the US economic recovery. And since growth in this yrs coming Q’s will be greater as the economy fully reopens growth for all of Y 2021 is expected to be at least 8%.
That will be the highest economic growth number since Y 1946. It means that GDP will be higher than it was before the VirusCasedemic, so the economy will have recovered fast from the steep instant recession seen last February/March.
And by year’s end, the unemployment rate, currently at 6%, will be under 5%, as millions of unemployed are called back to work.
Americans are flush with cash that they are ready to spend. Because of the massive stimulus bills already passed, a family of 4 with less than $150,000 in income, will have received more than $11,000 of free money from the federal government.
US households received that money whether they were financially hurt by the VirusCasedemic or not saved it, giving consumers cash to spend after the economy fully reopens. That spending coupled with the federal governments huge spending increase from Mr. Biden coming stimulus packages, will drive an unpresented economic boom in the US and fuel inflation.
America has not experienced a major inflation problem since Y 1981. Because inflation hit 13%, the Fed took action. Realizing that the inflation was primarily caused by a too rapid increase in the money supply, the Fed reduced the money supply and increased interest rates. Inflation fell to 3% and for the most part remained under 3% for the next 40 yrs (though fuel and food were removed from the 1000 odd items in the Fed’s index by President Clinton).
Today inflation is increasing. In January prices increased .3% which is about a 3.5% annual rate. In February prices rose by .4% which is about a 4.5% annual rate. In March, prices increased .6% which is nearly an 8% annual inflation rate.
As the economy continues to reopen and supply chain disruptions still exist, prices will increase meaning we could see inflation running at a double-digit rate.
Looking closely we can see inflation spiking. And it will get worse as the economic boom accelerates.
Increasing energy prices, rapid growth the money supply, huge government budget deficits and a potential capital shortage all lead to higher inflation and possibly stagflation.
The good news is that the economy is growing fast. The bad news is that inflation is becoming a problem and if business cannot expand, the economy will stagnate.
Clearly, no more stimulus is needed, and the government have likely over-stimulated already and from the looks of things I am hearing from Washington, DC will continue virtually uninhibited.
The post-VirusCasedemic is likely to be a global phenom, stay tuned…
Wednesday, the benchmark US stock market indexes finished at: DJIA +316.01 at 34137.31, NAS Comp +163.95 at 13950.24, S&P 500 +38.48 at 4173.42
Volume: Trade on the NYSE came in at 826-M/shares exchanged.
HeffX-LTN’s overall technical outlook for the major US stock market indexes is Very Bullish in here.
- Russell 2000 +13.4% YTD
- DJIA +11.5% YTD
- S&P 500 +11.1% YTD
- NAS Comp +8.2% YTD
Looking Ahead: Investors will receive the weekly Initial and Continuing Claims report, Existing Home Sales for March, and the Conference Board’s Leading Economic Index for March Thursday.
Have a healthy day, Keep the Faith!