Last week was relatively quiet in terms of economic updates, with only three major data releases. In June, service sector confidence remained in healthy expansionary territory despite a slightly larger-than-expected pullback for the ISM Services index during the month. This week will be packed with updates, with June’s inflation and industrial production reports and the first look at consumer sentiment in July serving as highlights.

My colleague Sam Millette, senior investment research analyst on Commonwealth’s Investment Management and Research team, has helped me put together this month’s Economic Risk Factor Update. Thanks for the assist, Sam!

As we close out the first half of the year, we know a couple of things. First, the U.S. economy is almost entirely reopened following the pandemic shutdown. Although we are not yet fully back, the healing process continues. The story for the rest of the year in the U.S. will be about managing the risks, staying open, and growing our economy. As we are largely past the pandemic, the challenge ahead will be keeping the progress going.

As we head into the second half of 2021, the virus appears to be contained at the national level. The declining medical risks have been good for the economy, with consumer and business activity back to pre-pandemic levels. Markets have celebrated the good news by hitting all-time highs. We're on the road back to normal—but will risks like labor shortages, supply-chain gaps, and inflation derail the recovery? Watch my 2021 Midyear Outlook video to find out.

There were a number of important economic data releases last week, with better-than-expected results for consumer confidence and hiring in June serving as highlights. The June jobs report showed that hiring accelerated during the month, demonstrating the positive impact from eased restrictions at the state and local levels. This week will be relatively quiet, with only three major economic updates scheduled.

June was a mixed month for the markets. In the U.S., the Nasdaq and the S&P 500 were up, but the Dow ticked down. We saw the same trend internationally, with developed markets falling even as emerging markets moved ahead. On the economic front, business confidence remains at or close to all-time highs. Still, the problems of success (labor shortages and supply chain issues) loom large.

As with the rest of the world, the COVID-19 pandemic had a devastating effect on the European economy, not to mention the continued uncertainty regarding Brexit. The U.S. and China were among the first countries on the path to economic recovery, while Europe struggled to emerge from the lockdowns and had a rough start to its vaccination program.

Yesterday, we looked closely at how the labor market has changed over the past couple of decades. Briefly, the number of job openings kept growing with the economy, while the number of unemployed people stayed roughly constant. As a result, the number of jobs available per unemployed person hit new highs and the number of excess workers—available workers less the job openings—went into deficit. Before the pandemic, there were more job openings than workers to fill them, for the first time. Currently, although the pandemic changed things temporarily, the labor market is back to worker shortage. As we look ahead to the next decade, will this trend continue?

So, let’s get back to the labor market discussion we started last week. Today, I want to take a deeper look at the key assumptions we referenced the other day, specifically that there will end up being more workers than jobs. As we discussed then, this has been the case for decades. But, in recent years, that dynamic has been changing as employment rose to new highs and unemployment dropped to multi-decade lows.

Among last week’s important economic data releases, May’s housing sales, durable goods orders, and personal income and spending reports stood out. The pace of existing home sales fell for the fourth month in a row, as limited supply and rising prices hindered sales. Once again, this week will be packed with updates, including a look into consumer and manufacturer sentiment and the release of the June employment report.