Thread by @DianeSwonk

Personal incomes & consumer spending lost ground in February after surging on the heels of stimulus checks in January. Harsh winter weather and electricity outages across the whole state of Texas exacerbated the losses. But, the underlying trend is stronger than a month ago.

Consumer spending for January was revised up, suggesting that consumers spent even more of their last round of stimulus checks than previously thought and another, more generous round was issued in March. The last plan upped checks to $1400 from $600 to get to $2000 total.

Preliminary data on March is looking extremely good. Air travel hit its highest level in over a year in March as travel triggered by spring break, a lifting of restrictions, stimulus checks & the fact that the majority of those over 65 are now fully vaccinated spurred demand.

It also looks like employment for the month cracked a million jobs - we get that data April 2. We need it given the 9.5 million we were still in the hole in February. The unemployment rate as calculated by the Fed for the bottom quarter of earners wad still above 20% in February

There is early evidence of a fourth wave in response to more contagious and potentially more lethal variants. Cases & hospitalizations among those under 50 have picked up. That could suppress gains in April but there is little stomach for additional restrictions.

The PCE price index rose 0.2% in February And accelerate to 1.6% from 1.4% on a yr/yr basis on higher food & energy prices. Core PCE decelerated from 1.5% to 1.4% on a yr/yr basis. Both are below the @federalreserve 2% target but won’t be for long.

A sharp deceleration (Soren outright declines) in prices at the onset of the crisis in March 2020 sets the stage for easier yr/yr comparisons. Bottlenecks in the supply chain and that are likely to arise as the pent-up demand for services is unleashed are expected to exacerbate

/increases in yr/yr measures of inflation this spring and early summer. Air fares, hotel room rates & rental car rates have already picked up. As we have seen in the manufacturing sector, it is easier to shut the lights out & close than ramp up again.

The Ever Given, the ship blocking the Suez Canal, is another problem for inflation, as it is exacerbating bottlenecks in the supply chain. Ships waiting to get past it can’t deliver their goods, although it may allow some of the backlog at US ports to be cleared.

The Federal Reserve has said it wound “look through” any temporary flare in inflation tied to the technicalities of low inflation a yr ago & and flare we see triggered by unleashing the pent-up demand in services. They do not want to get in the way of a more rapid rebound.

A surge in the pace of vaccinations and a waining resistance to taking them will also help curb the infections due to variants. This could dampen economic activity in April again but the hope is that we avoid the worst case scenarios we see in Europe with vaccinations.

They are especially worried about getting back to full employment, which means bringing in the workers hit hardest by the crisis and boosting participation in the labor market. They are worried that near term gains in employment could fizzle for low wage workers.

The crisis accelerated the adoption of existing technologies, which is expected to displace more workers in the service sector faster than we once thought. This is in addition to the shift to a hybrid of work-from-home, which will leave urban centers still wanting.

Workers who live in urban centers are also more likely to relay on mass transit and unable to reach jobs that shift to suburban locations. Business travel and conventions is expected to lag leisure travel, which means a slower recovery for convention centers. The

Bottom Line: The COVID recession hit trough in April 2020, but the recovery has been grueling. Vaccines & stimulus have given a much needed shot of adrenaline, which will show up in the months to come. There is the risk of another set back but not like we saw this winter. Hope.