Economics and markets

High inflation, but not stagnation

November 05, 2021

Joe Davis, Vanguard global chief economist

Vanguard global chief economist

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Figure 1. Supply, labor shortages act as a drag on growth
The chart depicts quarterly GDP lost to labor and supply constraints since 2007, just before the global financial crisis. Supply constraints have been significant lately, and especially right at the outset of the COVID-19 pandemic in the first half of 2020. Now, though, the shortage of workers is starting to influence Vanguard’s forecasts more significantly.
Figure 2. A crackdown on debt in China adds to growth pressures
The chart breaks down the share of household wealth in China and the United States. Housing account for almost twice as much of household wealth in China as it does in the United States. In China, 59.1% of household wealth is in housing, 20.4% in financial assets, and 20.5% in other physical assets. In the United States, 30% of household wealth is in housing, 43% in financial assets, and 27% in other physical assets.
Figure 3. Job openings per unemployed worker are at an all-time high
The chart depicts the ratio of job openings to unemployed workers since 2000. Ratios over 1.0 signify labor shortages, while ratios below 1.0 signify job shortages. Job shortages were prevalent for most of the period and were at their greatest at the start of the global financial crisis. Labor shortages have become the rule in the last several years, interrupted briefly by the onset of the COVID-19 pandemic but now back to an all-time high.
Figure 4. Labor market red-hot in “non-COVID” sectors
The chart depicts ratios of job openings to the unemployed in July 2021 in three sectors: information technology (1.33 to 1 ratio), financial services (1.86 to 1), and professional services (2.01 to 1). All ratios are higher than in previous high points in December 2000.
Figure 5. Monetary policy remains historically accommodative
The chart depicts a proprietary Vanguard measure of whether U.S. monetary policy is loose or tight. It shows policy typically as loose during and after recessions but eventually becoming tight during recovery from recessions. Monetary policy has remained loose, however, for more than the last decade and is as loose as it’s been over the last three decades.
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