The triple challenge facing the United States economy

Inflation has reached its highest point in 13 years, there are shortages of some products due to problems in global supply chains and there are fewer people willing to enter the workforce.

This scenario occurs while the delta variant of the coronavirus has continued to spread strongly, despite the extensive vaccination program that exists in the country.

More than 700,000 people have lost their lives during the pandemic. Most of those who have died in recent months had not been vaccinated.

“The first great economic challenge is the control of the pandemic. And for that, we have to get as many people as possible vaccinated, ”says David Wilcox, a researcher at the Peterson Institute for International Economics (PIIE) think tank in Washington DC.

“If we leave behind the fears caused by the virus, many of the other economic problems will be solved,” he argues in dialogue with BBC Mundo.

These are some of the biggest challenges facing the US economy right now in fueling the recovery.

1. Inflation

One of the great economic debates that exists these days in the United States is that of inflation.

The latest data available indicates that in September prices climbed at an annual rate of 5.4%, the largest in more than a decade.

Until now, the Federal Reserve (Fed) has insisted that high inflation is a transitory phenomenon, but other economists believe it could be a long-term problem.

The Fed has indicated that it could begin to reduce its monetary stimulus towards the end of this year, probably by slowing down bond purchases first and later by raising interest rates, which are currently practically at zero.

In the political backroom, opponents of the Joe Biden’s government economic agenda They have used the rise in inflation as one of the arguments to classify their plans to expand fiscal spending as excessive.

People are feeling in their pockets the increase in the cost of food, housing and gasoline, among others.

And concerns about rising rent and home prices have become a litmus test to help predict whether inflation will hold even after the pandemic is over.

2. Product shortage

So complicated are the problems in product supply chains globally, that a few days ago President Biden announced that the Port of Los Angeles will begin to “operate 24 hours a day, seven days a week,” as a way to facilitate the flow of goods.

The consensus among experts in the area is that the so-called “container crisis” will not be fully resolved until sometime next year. The most pessimistic believe that it could extend even until the beginning of 2023.

But the most optimistic believe that the delay in the arrival and distribution of products in the country’s ports is a sign that the economic recovery is gaining strength.

The problem is that many companies have no way to import their products, either because they cannot find space on cargo ships or because they cannot pay unusually high prices for their transportation.

“The collapse of the pandemic caused a big change in demand, from the consumption of services to that of physical productsWilcox explains.

In a short time the supply chain was overwhelmed because people wanted to buy things more than spend on travel, restaurants or other types of services.

That demand for consumer products caused shortages in inventories and suddenly shipping and ports, adds the economist, were not able to handle that increase in volume.

What is worrying is that rising inflation, difficulties in the labor market and shortages of some products, “are intertwined problems,” says Wilcox.

3. Labor market

The labor market is another challenge facing the economy. Americans are quitting their jobs at a record rate that reached 4.3 million people in August, nearly 3% of the workforce.

It is a phenomenon known as “The great resignation”, another of the economic consequences left by the pandemic.

And although the abandonment of jobs is occurring at different levels, where it has become more evident is in those jobs with the lowest salaries and in which people are more exposed to being infected.

The most typical example is that of fast food chains. One of them, Pollo Tropical, from Florida, offered an extra bonus of US $ 500 to new employees, regardless of salary.

Even large chains such as Walmart or Target, offered, in addition to a salary increase and incentives such as the payment of higher studies in certain educational centers.

The record of people quitting their jobs suggests that wages will rise at an annual rate of between 4% and 4.5%, wrote Michael Pearce, an economist at the US-based research firm Capital Economics.

If labor force growth remains slow, he warned, it can contribute to rising inflation, or even become “a lasting drag on economic activity.”

The truth is that the job market has become an enigma.

“Many workers are unwilling to return to the workforce, particularly if the workplace requires close contact with clients or colleagues,” Wilcox explains.

And that happens despite the fact that wages are growing.

From their perspective, having the pandemic under control will make workers more willing to return their jobs.

“It will also bring consumers back to demand more services and when they do, that will take the pressure off the supply chain. And when the pressure in the supply chain is released, some of the inflationary pressures will diminish, ”says the economist.

“These problems are all related.”

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