The Vaccine Rollout Is Slowing

The U.S. vaccination rates still lead those of major North American and European countries (see chart 1), but in the past four weeks, the rollout in the U.S. was the slowest among the major advanced economies. The share of the population fully vaccinated went up by 7 percentage points (ppt) to 42%, and the share that received at least one dose edged up by 5 ppts to 51%. In contrast, in the past month, the countries in chart 1 experienced an average 11 ppts increase in the share of population fully vaccinated, and a 14 ppts increase in the share of population that has received at least one dose. It is now becoming harder to get people who are either unwilling or unable to get vaccinated to the vaccination sites.

The relatively high vaccination rates in the U.S. are mostly due to the faster pace of inoculation on the East and West Coasts, especially the northeast (see chart 2). Vaccine acceptance aside, people living in more populated cities are likely to be more concerned about getting infected and, as a result, seek protection by getting vaccinated, leading to the uneven vaccination rates across states.

Mobility Ticked Up But Divergence Remains

Outdoor activities and air traffic picked up modestly in the past month. The average number of seated diners even reached its 2019 levels at the end of May (see chart 3). Specifically, the Google Community Trends ticked up to 4% below the pre-pandemic level in early June, from 6% below in the last report (see chart 4). Air traffic was 25% below its 2019 average, up from 33% below last month (see chart 5). Both the number of seated dinners and the traffic congestion trends in parts of the country have reached or surpassed their pre-pandemic levels in late May, despite a small decline in the first week of June.

Although we saw an overall increase in mobility across the country, divergence remains. While restaurants in Texas and Florida have already enjoyed over 10% more diners than they normally did in 2019, those in in New York and Illinois are still having over 30% fewer. Traffic congestion trends in Los Angeles are still 26% below their pre-pandemic levels, while New York and Chicago both saw their congestion trends increasing to the pre-pandemic levels at the end of May (see chart 6).

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Housing Demand Is Retreating From The Elevated Level Last Year

Demand for new homes seems to have come down from its elevated levels last year. The Mortgage Bankers Association Purchase Index, at 261.4 as of May 28, declined slightly from 276.7 four weeks ago (see chart 7), extending the downward trend that started mid-March. The surge in home prices due to increasing demand, lumber shortage, and extremely low home inventories may have discouraged home purchases despite mortgage rates staying exceptionally low.

The slowing of new intentions to purchase new homes may have also stopped lumber prices from moving higher (see chart 8). The lumber future prices, which experienced rapid growth since late March, have come down to $1,272 per 1,000 board feet as of June 8, from its peak of $1,564 in the middle of May.

Despite the slowdown in mortgage applications, goods demand may still be on the rise because of the spillover effect from previous and ongoing home purchasing activities. Besides, better financial conditions and the generous government transfers are still supportive of more goods consumption, especially durables.

Indeed, industrial production activities grew steadily in the past month, indicating growing goods demand from consumers. Raw steel capacity utilization, at 82.3% as of June 5, exceeded its 2019 average for the first time since the pandemic started (see chart 9). The Chemical Activity Barometer, a leading indicator of industrial activity, also ticked up to 6.4% above its 2019 average from 5.3% above in the last report (see chart 10).

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The Job Market Continued To Improve

The job market is improving at a steady pace, indicated by our real-time trackers. Initial claims for the week ended June 5 were 376,000, falling by 9,000 from the previous week (see chart 13).

After hovering around 800,000 for almost nine months, from August 2020 to April 2021, initial claims have been declining more rapidly since May, by an average of 26,000 per week, despite a relatively small drop in the first week of June. The faster decline in initial claims reflects stronger labor demand from businesses, especially the more labor-intensive service sector, which created 99% of new jobs in the private sector in May, according to the Bureau of Labor Statistics' nonfarm payroll data.

Businesses do seem to want more help. Indeed daily job postings remained 27% higher than their pre-pandemic level as of May 28, almost unchanged from last month (see chart 15).

The Conference Board also indicated that in May, there were markedly more people who found that jobs are plentiful than those who found that jobs are hard to get. The difference between the share of consumers holding the two opposite opinions widened in May to 34.6 ppt, from 21.6 ppt in April, and has increased for four consecutive months (see chart 18).

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Consumer Sentiment Softened Since April (When Fiscal Impulse Peaked) As Inflation On Travel And Transportation Items Rose

The May Consumer Price Index (CPI) increased by 0.6% from its previous month, registering a year-over-year increase of 5.0% before seasonal adjustments. This was the highest CPI inflation reading since August 2008.

Used cars and trucks contributed to one-third of the price increase in May, with their price index jumping by 7.3% from last month, following a 10% month-over-month increase in April. The jump in inflation reflects the base-effect, supply bottlenecks, and growing demand for goods and service encouraged by rebate checks and reopenings.

Admittedly, our inflation forecasts have fallen short (like consensus). A lot of the misses are due to hard-to-forecast pandemic-sensitive items of the consumer basket, such as airfares, used cars, new cars, gasoline, and other transportation, which as a group fall in the travel/transportation category. Americans who may be looking forward to traveling this summer are in for a sticker shock, and it will likely take the rest of the year to iron out supply-side pressure to meet the rising demand.

The surging used-car price is a good example of a pandemic-sensitive demand-supply cross-current: A chain reaction started with the change in transportation preferences during the height of the pandemic (from public to private vehicle transportation), which increased demand for both used and new cars. At the same time, the surge in pandemic demand for electronics that compete for semiconductors led to a global shortage of semiconductors that limited auto manufacturing. Rental agencies that normally offload their used cars to replace their aging stock instead held on to their existing fleet and, in fact, even demanded more used cars as production of new cars fell behind. The chain reaction has led to transitory supply constraints in auto production and, as a result, higher prices as demand outstripped supply.

Witnessing the surge in prices, especially retail gasoline prices, which increased to $3 per gallon as of June 7 (see chart 19), consumers have likely become more concerned about their personal financial conditions. Both the University of Michigan Consumer Sentiment Index and the Conference Board Consumer Confidence Index softened in the second half of May, with both reports mentioning that consumers are relating higher inflation with worsening financial conditions (see chart 20).

In early June, however, the one-year ahead inflation expectation in the University of Michigan Consumer Sentiment report moved down to 4% from 4.6%, and the five- to 10-year ahead measure dropped to 2.8% from 3%.

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