Above the Fold

What’s Next for the Economy?

Ask most Americans and they will probably say the economy is extremely strong. Jobs abound, the housing market (in most areas) is rocking, most businesses are thriving (if they can find employees to work) and the prices of just about everything we buy or use are climbing (wages too). From a thousand feet away, the domestic economic machine seems to be chugging along, but there are a few nuances you should realize.

The Delta variant certainly put a damper on the economic snapback following the initial pandemic shutdown. Delta’s effects are likely to mute growth in third quarter GDP (gross domestic product), with current consensus forecasts predicting just 3.4% growth. But as vaccinations rise and COVID-19 cases decline, economists expect a 6.2% jump in real GDP in Q4. Airline travel has been increasing, and U.S. hotel occupancy was at 63% last week, the highest level since August. The Federal Reserve has also raised its 2022 growth forecasts to 3.8% from 3.3% at the start of summer. 

Most current trends do indicate a strong end to 2021, but expect the trajectory to change starting next year. While growth is expected to continue into 2022, the growth rate is expected to slow each quarter. Consensus estimates expect 4.8% growth in Q1, but see that rate slowing to just 2.4% by the end of next year. Obviously, there are a multitude of variables, from government spending and tax law changes to labor market improvements and child vaccine developments, which could all impact readings (hopefully for the better). We remain cautiously optimistic for the future. 

Three Things 

1. Explosive Batteries Remain a Problem for Automakers – Basis Points has been on top of automakers’ global push to build batteries in-house for their own EVs (electric vehicles). But some manufacturers, including Toyota, Volkswagen, Ford and others, are investing heavily in alternative, solid state battery technology. This type of power pack would offer lower cost, longer range and best of all, wouldn’t have the potential to catch fire like lithium-ion cells. Unfortunately, solid state technology is still costly and untested in the automotive world; its mainstream, commercialized introduction is still likely years away.
2. Investors’ Risk Appetites Are Changing – The most basic form of diversification is a portfolio’s bond vs. stock allocation. As interest rates on ultra-safe government bonds rise, investors tend to move money out of more risky assets, like tech stocks for instance, and into safer debt instruments. This is especially true when equities have performed strongly. The selling pressure we’ve seen in the stock market as of late is at least partially due to a sharp rise in treasury yields; especially the 10-year note, which has been rising sharply to more than 1.5% over the last two weeks. 
3. First Natural Gas, Now Crude Oil – As natural gas prices spike to multi-year highs, traders are simultaneously pushing the price of crude oil to near three-year highs around $80 per barrel. With global demand coming back online and heavy demand for natural gas and energy in general, crude is likely to continue to see buying pressure. Higher crude prices may very well trigger producers to add supply at these prices, but they may take some time. Expect energy prices to remain high through the end of 2021. 

Did You Know? 

What Is a Solid State Battery Anyway?

Most EV batteries, such as lithium-ion (Li-ion), use a liquid or gel-like catalyst to manage the flow of electricity between the cathode and anode. Though Li-ion cells are modern technology, with vast improvements over older types, the energy cells tend to be heavy and the liquid portion in Li-ion batteries is flammable. And even though battery technology has come a long way, the energy density of the cell is limited, which means you’d have to add more batteries (and weight) if you want to go further. Solid state cells use a non-liquid catalyst like ceramics or glass and have less parts, less weight and the potential for much higher energy density. They can also charge much faster and don’t lose their power capacity as quickly as Li-ion batteries.