Global Macro Service > Research Briefings > United States

Macro Musings: Will Grinch steal Christmas?

Will the supply-side Grinch Steal Christmas? With an armada of vessels clogging ports unable to unload their wares, stores and warehouses may not receive goods in time for the holiday season. The Delta variant curbed demand in the third quarter, but supply restraints amid strong demand may be more of a drag in the current quarter. The counterpoint to this downside risk to growth is the upside risk to inflation that the demand/supply mismatch suggests. Indeed, the bond market is priced for the highest inflation in decades, with the 10-year breakeven rate hitting the highest level since 2006 and the 5-year breakeven rate surging to a new record. These market gauges still do not expect inflation to exceed 3 percent, hardly an inflation regime shift. Supply constraints are impeding the housing industry more than any sector except perhaps autos. The performance of housing has increased in importance, as the industry has clawed back all of the influence it lost in the years following the housing collapse. As a share of GDP, residential outlays now exceed the average of the past 60 years.

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