"Q3 2021 - Thinking Our Way Through the Economy"

  • By: Joseph R. Tranchini, CFA
  • November 2021








Although still growing at a positive rate, the U.S. Economy’s growth decelerated rather significantly during Q3 to a pace of 2.0%1,2 (SAAR) from the prior quarter’s reading of 6.7%1,2 (SAAR) as supply-chain disruptions materially held-back economic activity across a wide array of sectors. Large scale labor shortages, which have indiscriminately permeated numerous areas of the economy, contributed meaningfully to decreases in the availability of many major consumer-facing goods during the quarter. This unfortunate reality was particularly felt in the economic realm of Durable Goods which experienced a historic contraction over the period, having declined by -26.2%1,2 (SAAR) as individuals looking to buy “big-ticket” items could simply just not get their hands on them at reasonable prices. Interesting enough, areas of the economy which are not particularly prone to supply-chain woes continued to experience rather robust economic growth. A likely ray of hope in an otherwise underwhelming quarter. Even if consumers are unable to find reasonable deals on major goods at present time, this evidently did not limit their ability to spend money in other arenas, as was evidenced by robust growth across areas such as Transportation Services of 41.5%1,2 (SAAR), Healthcare at 5.7%1,2 (SAAR), and Recreation Services of 16.5%1,2 (SAAR). Apparently, supply-chains cannot hold everyone back…


“A fair deal at a fair price” has never seemed like as much of an alien concept as it does right now. A head-on collision between rapidly increasing economic demand and problematic supply-chain issues has resulted in the reanimation of inflation levels that have not been witnessed since before people started carrying cell phones. Even so, over the past 3 months the pace of Inflation, both Headline & Core, has moderated closer to historically average levels. This dynamic is in stark contrast to what market expectations are for future inflation, which have continued to tick upward since mid-2020 and are currently courting decade-long highs. Nevertheless, the Federal Reserve is still adamant in its view that the abnormally high levels of Inflation currently being felt across the economy are, in fact, transitory and will substantially abate throughout 2022 as supply-chain activity normalizes and rises-up to meet the awakening of the U.S. Economy’s demand in the post-pandemic era. In other words, what goes up must eventually come down.


3 problems, 1 source. Constrained economic growth, abnormally high Inflation, and supply-chain disruptions all appear to be the symptomatic manifestation of one universally shared cause, the absence of Labor. A natural extension of this realization would then be to ask both what needs to be done to attain higher levels of Labor, as well as when such a phenomena might be reasonably expected to occur? In an effort to attract and retain workers, employers all across the economy are offering incentives such as higher wages, schedule flexibility, and sign-on bonuses. Current and prospective workers are taking notice, with individuals who are currently working ‘swapping’ their existing jobs to take advantage of opportunistically better offerings, and prospective workers being provided with the impetus necessary to re-renter the Labor Force. However, even with the allure of better working circumstances and the recent expiration of enhanced unemployment benefits, job growth has not rebounded as elastically as one might have hoped. The explanation might lie within a familiar concept, savings. Paradoxically, throughout the pandemic both Personal Income, as well as Personal Savings, increased substantially. Increased savings appear to have afforded those who remain unemployed after the expiration of enhanced unemployment benefits time to ‘find the right fit’ when it comes to the job search process. Important to note, savings do not last forever and neither does an opportunistic job market. In time, absent labor will, in all likelihood, have to return to the labor force. When that happens, it is more than reasonable to expect the confluence of economic issues currently constraining the economy to ease and give way to more robust economic growth. Given this outlook, it would become clear that two core principles will remain as important now as they ever have been. Time & patience, a warmly familiar cast of characters who just so happen to be the very best friends of the long-term investor.


[See Below for Disclosures & Annotations]


Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

The companies presented here are for illustrative purposes only and are not to be viewed as an investment recommendation.

Tax laws and regulations are complex and subject to change, which can materially impact investment results. LPL Financial does not provide tax advice. Clients should consult with their personal tax advisors regarding the tax consequences of investing.



  1. FactSet. “Economics – Country/Region – United States”. October 28, 2021.
  2. Bureau of Economic Analysis. “Gross Domestic Product, 1st Quarter and Year 2021 (Advance Estimate)”. October 28, 2021.
  3. Bureau of Economic Analysis. “Personal Income”. October 29, 2021
  4. FRED. “5-Year Breakeven Inflation Rate”. November 2, 2021
  5. FRED. “10-Year Breakeven Inflation Rate”. November 2, 2021
  6. Bureau of Economic Analysis. “Labor Force Statistics from the Current Population Survey”. November 5, 2021