3 Key 2021 Economic Insights Business Owners Should Know

3 Key 2021 Economic Insights Business Owners Should Know

Written by Keith Wirtz, Chief Investment Officer at USB

It’s hard to believe that 2021 is more than halfway over, but it’s fair to say a sense of normality is returning to the U.S.. We’re seeing signs of a healthy stock market and a better-than-expected economy which is primarily credited to the country’s vaccination efforts reaching more than 50% across our population.

While these are all positive signs we’re recovering from the pandemic, many of our business customers and clients still have a few areas of concern as it relates to the economy. These areas include supply chain disruptions, rising inflation, and pending tax reform. Let’s look at each of these areas of concern and how we think they may affect running your business during the rest of 2021 and beyond.

Supply Chain Disruptions Will Balance Out

The supply chains issues in the U.S. started last year during the pandemic, and while they are continuing to normalize, they remain a serious problem for our economy today. According to recent data from Goldman Sachs, many industries are continuing to report supply chain disruptions, especially the manufacturing sector. That’s not just on a national scale; about two-thirds of our recent business webinar attendees said that supply chain disruptions have directly impacted their business here in Connecticut, so we’re feeling it locally as well.

The imbalances are coming from both supply and demand, and they are starting to level out on both sides. There has been a shift in household spending patterns on the demand side, and consumer spending has continued to rise over the last 12-18 months, likely due to the impact of the three rounds of stimulus checks. Suppliers have struggled to keep up with this demand surge, which has created some imbalances in the economy, especially in the automotive and technology sectors.

We are now beginning to see this imbalance concerning supply and demand return to normal. In our view, household incomes will continue to diminish with the lack of stimulus checks slowing consumer spending so that spike in durable goods will go away. On the supply side, industries that significantly affect supply overall, like manufacturing, semiconductors, and microchips, are ramping up production, so I think that will have a huge benefit and help bring us back to balance in the economy as well.

On top of this, the latest labor shortage has also not helped increase production levels to meet the demand. Yet now labor is coming back as we head in 2022. Not only are there many jobs still left to be filled, but many relief programs that have been put in place during the pandemic are expiring this fall. Once that labor comes back online, I think we’re going to see an elevation of production, which will help us rebalance supply and demand.
Overall, I see the issues affecting supply and demand as not permanent as we are already seeing positive shifts in spending and labor patterns that are helping to balance everything out.

The Spike in Inflation is Only Temporary
Our clients and customers are also really concerned about the recent jump in inflation, and the alarm is understandable based on previous inflation spikes in the past. My initial feeling about this trend is, similarly, to supply and demand, that it’s only transitory. It won’t get to the point where it’s really damaging our economy and interest rates. The recent data points on inflation are starting to show signs of improvement, and the psychology of the investment marketplace right now is that the fears of inflation, are starting to dissipate.
Especially as we head into 2022, I think we’re going to see an economy that’s going to continue to expand and, as a result, some of the distortions that we’re currently experiencing are going to go away. We’re going to see a healthier balanced economy next year with much more moderate inflation levels.
Overall, since the economy has reopened this year, we’ve seen some substantial numbers, and I think next year it’s going to return to normal. As we’re having these jumps in price increases, we’re going to have some of the spending patterns change now that the economy’s opening.

Tax Reform Could Impact Businesses
While there are no concrete details yet, potential tax reform will become much more of an issue this coming fall, and it’s something all business owners should pay attention to. As with any new administration in its first year, new tax proposals are being put on the table, and if there are going to be significant changes to the tax code passed, it’s likely going to happen this fall. Some of the current proposals include elevating the statutory corporate tax rate to 28% from 21% and imposing a minimum tax on global book income, translating into higher costs for businesses.

Another item to watch out for is a potential significant expansion of the IRS enforcement budget, which would allow for much more robust enforcement capability to come into the corporate environment. So going after tax avoidance or unpaid taxes for businesses will become a significant priority. Any local business dealing with tax issues should make a note of that. Knowing about these potential changes and a timeline of when these things might happen is beneficial for local business owners.

Conclusion
Last year’s pandemic caused several major economic disruptions, many of which we’re still feeling the effects of today. It’s always good for local business owners to pay attention to these trends and learn how to navigate them. Overall, 2021 is still filled with the unexpected, but as we look ahead to next year, I’m confident we’ll see the economy balance itself out as we move into 2022 – which is looking to be a more normal year after two quite disruptive ones.

Keith and our team of USB financial advisors bring worldly expertise and local knowledge, and service to the table for every discussion. Call us today and set yourself, your business, and your employees up for success in 2021 and beyond – 866.872.1866 or visit unionsavings.com.

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Opinions and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. We believe the information provided here is reliable but should not be assumed to be accurate or complete. The views and strategies described may not be appropriate for all investors.