Most economists surveyed in early July see strong growth for their companies for the rest of next year and into the spring of 2022, the National Association of Business Economists said on Monday.
Shortages and rising prices of key materials were among the major challenges cited, with 61% reporting cost increases in the second quarter. More than half, or 51%, said wages had risen at their companies, up from 31% in April.
“The results of the July NABE Business Conditions Survey show that conditions remained strong during the second quarter of 2021,” said NABE President Manuel Balmaseda, chief economist at Cemex. “Eighty-six percent of respondents expect real GDP (gross domestic product) growth over the next year will equal 3% or more.”
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The unbridled optimism echoes another survey released late last week from JPMorgan Chase, which sampled leaders of mid-sized businesses.
The Business Leaders Outlook Pulse Survey found 88% of respondents optimistic about their company’s performance for the next six months, the highest level recorded in 11 years.
Three-quarters or more of those polled also are optimistic about the overall U.S. economy, up 40 percentage points from a year ago when the coronavirus was surging.
“The demand side of the economy picked up faster than the business community expected,” said Jim Glassman, managing director and head economist for JPMorgan’s commercial banking group.
As for the delta variant of the virus which is now spreading rapidly, Glassman adds, “This phenomenon has more in common with a natural disaster” than a long-term hit to the economy.
Glassman says companies are showing they are adaptable in the face of shortages of labor and materials.
“Even before the pandemic, businesses had 7 million jobs open and now it’s over 9 million,” he adds. “They are trying to figure out how to automate more.”
The results of the two surveys are in line with multiple private and government economic forecasts, with shortages and higher prices for labor and materials continuing to be the biggest threats to growth.
A week ago, the Dow Jones Industrial Average fell more than 700 points and the yields on the 10-year Treasury dropped sharply. Both recovered as the week went on.
The jitters were caused by concerns that the highly transmissible delta variant of the coronavirus, which has driven cases up in most countries around the world, would derail the growth forecast.
Concerns about inflation and the virus were reflected in last week’s Forbes Advisor-Ipsos Consumer Confidence Tracker, which recorded a drop of 4.2 points to 57.2. Expectations that the economy would quickly recover dropped 8 points from the prior week, but 56% of those surveyed still expect it to rebound once restrictions imposed during the pandemic are fully lifted.
This week sees second quarter earnings results from a number of market leaders, including Apple, Microsoft, Alphabet and Facebook. The stocks of those companies are among the most highly valued in the market and any stumble would likely lead to a selloff.
Also, the Federal Reserve will meet for two days on Tuesday and Wednesday to review its monetary policy goals. Inflation has spiked in recent months, but Fed Chairman Jerome Powell says the rise is temporary and the result of disruptions in global supply chains caused by the pandemic.
Given the strength in the economy and a steady improvement in the labor market, most observers expect the Fed this year will announce plans to reduce its $120 billion per month purchases of Treasuries and mortgage-backed securities which have acted to keep interest rates low. However, that is not expected at this week’s meeting.
On Thursday, the government will report its first estimate of second quarter GDP growth, with consensus estimates of about 9%. GDP rose 6.4% in the first quarter.
While the NABE survey did not reveal major concerns over the spread of the virus, 61% of the respondents said work-from-home and other flexible scheduling arrangements will remain after COVID-19 is no longer a threat.
The JPMorgan survey found that 38% of businesses expect their workers to return to on-site work, but 26% said they are implementing a flexible work model.
Hovering over all of the week’s economic news is the ongoing debate in Congress over a so-called bipartisan infrastructure plan, or BIF, and a $3.5 trillion budget proposed by the Biden administration. Both have run into opposition from Republicans in both chambers.
Already, Washington has pumped more than $4 trillion into the economy to fight the pandemic, worrying some lawmakers and economists that it is too much stimulus and will lead to higher levels of inflation.
“The spending level of the reconciliation bill is currently targeted at $3.5 trillion,” Brian Gardner, chief Washington policy strategist at Stifel, wrote last week. “I expect that level will be decreased (as centrist Democrats push for a lower price tag) so the BIF (currently $1.2 trillion) combined with the reconciliation bill will probably total somewhere between $3 trillion and $4 trillion in spending over 10 years.”