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Here’s how to prepare for the next steps in the U.S. economy

The Delta variant is raging and the US economy remains in full swing, so we wonder what things will be like around the corner. As Q3 takes shape, the facts at hand suggest the following trends:

The pent-up consumer demand is driving inflation

As it turns out, people have a limit on how much Netflix they can consume. The US consumer has been unleashed with an anger unmatched in history. The US savings rate tended to be higher than it has been in nearly four decades.

According to McKinsey, in April consumers hit a wall and started spending their savings at record speed. 80% of the millennials surveyed said they were willing to “indulge” themselves. Brand loyalty has dropped significantly over this period, with 40% changing brands – twice as much as in previous periods.

Brands need to earn loyalty by focusing on the new rules of engagement: environment, social, governance (as a company value) and customer experience. Suddenly, prices are less important.

But inflation has not penetrated all areas of the economy. Supply chain and raw material shortages have led to out of control markets in sectors such as lumber and silicon chips. The deflationary nature of technology has reversed course.

Shift in business priorities

US companies were hoarding cash. Business capital spending is nearing an all-time low, according to Bloomberg BusinessWeek. Companies are moving resources away from corporate offices to technology architecture, cyber protection, e-commerce platforms and hiring talent.

With access to cheap capital and rising wages, companies are very motivated to promote robotics and automation. However, the integration of such technologies has been poor due to the Covid-related lack of engineers and the late arrival of devices from Europe and Asia. One of our strategy customers, a US-based green beauty brand, cannot launch a new family of products because their ship has been waiting offshore for a month to find a place in a port on the west coast.

As prices rise, companies have lost the muscle to pass on price increases. Many fall into a trap where incremental improvements in the supply chain are neglected. Every company that moves goods has to build its supply chain from scratch.

Work stifles growth

The Conference Board predicts the U.S. economy will grow 6.6% in 2021, but growth will be constrained by severe labor shortages. Companies are taking the extreme step of changing their business models. For example, some full-service restaurants are switching to self-service and drive-throughs.

US companies are getting creative and using programs like H-2B in agriculture to import talent. Others hire retirees and other underemployed demographics.

Shifting stimulus

As President Biden ponders his decision on who will be the next chairman of the Federal Reserve, most economists anticipate a turnaround in US monetary policy. The Fed is signaling a slight retreat on a number of measures, including quantitative easing – buying government bonds and mortgage-backed securities. The Fed’s actions have kept the 10-year mark at 1.5%, an artificial boon for the US economy. As the Fed pulls back, the housing market is likely to cool.

The scope and scale of US government incentives are overwhelming. The Infrastructure Bill will set some priorities around Covid, but most of the money will go to decades of efforts to rebuild America’s ailing roads, bridges, and airports.

Entire industries and companies will shift. The construction sector, which has shifted from commercial to residential in the last 16 months, will see new civil projects to pursue in growing areas like Phoenix, Boise and Nashville. Domestic industries like telecommunications and 5G will grow.

China: to be continued

Some business leaders have urged the government to move away from Trump-era tariffs and saber rattles. However, the US’s recent stance on cybersecurity and intellectual property (IP) protection shows that Biden is in no mood to let China off the hook.

Many US companies are trying to deglobalize their supply chains in order to maintain stable inventory levels. Large retailers like Walmart and Best Buy have told their sellers that they will pay more for just-in-time access to local supplies.

The hybrid puzzle

Companies that had planned to return to the office after the children returned to school in September are in a pickle. The Delta variant is a curve ball for US employers who are withdrawing plans to bring people into the office.

While the hybrid office emergence may be slowing down, don’t buy into the “downtown death” debate. Companies still want to be present in downtown New York, Los Angeles, San Francisco and Boston.

When companies adjust their strategic plans, they need to keep an eye on the changes to come.

The opinions expressed here by Inc.com columnists are their own, not Inc.com’s.

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