10 Takeaways From Anirban Basu’s Economic Update – November 2021

By Daniel McGarvey

On November 19, 2021, Stonebridge Financial Group was thrilled to host noted economist Anirban Basu at dual events held in Harrisburg and Lancaster as he presented an update on the economic state of affairs. Here are 10 key takeaways from his presentation.

  1. Effects of the Pandemic on GDP Vary Worldwide

Even though the pandemic has been a global event, it has affected different countries in different ways. For example, China’s real GDP grew 2.3% in 2020, but in the United States, it shrank 3.4% as we lost around a decade’s worth of job growth in the few weeks after the pandemic began.

  1. Job Losses Rise Higher in Pennsylvania

Pennsylvania lost 5.9% of its pre-February 2020 nonfarm jobs, compared to 3.1% for the country. However, the Harrisburg-Carlisle area has only lost 2.6% and added 1,400 jobs in mining, logging and construction.

  1. Leisure and Hospitality Absorb Hardest Hit

The heaviest job losses since February 2020 have come from the leisure and hospitality industry, where labor has been difficult to come by even though restaurant reservations are now back to their 2019 levels. By contrast, the financial activities sector actually has more jobs filled than before, in part because the work can be done remotely, and many people now prefer working from home.

  1. Urban Locations Lose Appeal

With the increased desire to work from home and avoid commuting, proximity to major metro areas has lost some of its appeal and induced a flight to the suburbs and an increase in suburban home-building.

  1. Housing Values Rise Organically

The spike in home values may look similar to the mid-2000s bubble, but this time it is fueled largely by the increased supply-side costs and flight to the suburbs. In the 2000s, prices rose because of artificial demand.

  1. Online Spending Drives Retail Gains

Retail sales have surprised to the upside recently, in part because of inflation but mostly due to an increase in online spending. Sales for internet retailers have increased 39.8% versus pre-pandemic levels, while sales at restaurants and bars have only grown 9.4%.

  1. Many Consumers Are Better Off Financially

Consumer sentiment is now at a pandemic-era low, but the average American household used this time to improve its balance sheets and amass considerable savings that can now be pumped into the economy. Although it may not be true for everyone, on a macro level, the average consumer is better off financially than they were before the pandemic.

  1. Supply-Demand Hits an Imbalance

The demand side of the economy is in good shape, but the supply side continues to lag behind. Only 10% of small businesses think the next three months are a good time to expand, and they are struggling to hire and keep workers, meaning they are not expanding capacity to meet the heightened demand. This supply-demand imbalance is inflationary and has caused economic growth to be lower than it should have been this year.

  1. Inflation Stays Inflated

Inflation could remain in the 3-4% range next year as supply chain bottlenecks continue to be worked out and consumers attempt to regain confidence. Demand will continue to get a boost from ongoing stimulus, household savings will remain elevated, and real GDP growth could also be in the 3-4% range.

  1. National Debt Soars Past $28 Trillion

At some point, though it may not be in the next few years, there will be a day of reckoning because of the national debt that we have incurred, which now exceeds $28 trillion.