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November 2, 2021
Supply chain disruptions caused by clogged ports, labor shortages, and the delta variant of Covid-19 should begin to dissipate as the global economy adjusts within a still strong demand environment. Government policymakers will also look to intervene in trying to help relieve obvious pain points.
Economic growth in the U.S. is beginning to recover from the disappointing third quarter as production keeps up with demand generated by the financially (and more physically) healthy American consumer. Holiday spending is poised to increase close to 10% year over year. Sporadic shortages and pent-up demand will keep inflation rates high, but inflation should recede into 2022. European economies have been restrained to a greater extent by inconsistent supply chains and higher infection rates over the summer. As such, these economies may be even bigger beneficiaries of loosening supply chains and sharply declining hospitalization rates although consumers on the continent did not receive the same level of governmental income support as was delivered in the U.S.
The inevitable slowdown in Chinese economic growth, which was happening prior to the pandemic, has been accelerated by the re-engineering of global supply chains and the growing assertiveness of the government in attempting to address income inequality issues. Market forces in correcting imbalances will likely be constrained until the economy slows enough to convince the government to relent and allow supply to more adequately meet demand.
In strong markets such as the one we are experiencing in 2021, equity markets tend to carry the positive momentum into year-end. Looking beyond this year, global equities will be facing tougher year-over-year earnings comparisons, profit margin challenges, and incrementally tighter monetary policies. Improved productivity will be key to maintaining economic growth as policy support wanes. Capital spending on technology should be monitored closely as it will be necessary to help offset what may be a more permanent shortage of labor in certain sectors of the economy.
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Ben is the Chief Investment Officer and a Partner in the New York office. He leads the firm’s Investment Committee and is a member of...
Ben Pace, Tom Cohn and James Lebenthal
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