During the current reopening phase, the surge in demand is hitting some sectors before the supply side has had a chance to catch up. Many businesses shrank in order to survive the pandemic and now may be struggling or moving cautiously to expand capacity. These mismatches are exacerbated in some sectors by idiosyncratic supply disruptions, such as in semiconductors, steel, and lumber.
Importantly, the reopening pains associated with mismatches between demand and supply in most sectors are temporary in nature and are likely to be resolved as pent-up demand moderates and businesses hire and expand. These temporary reopening mismatches are evident in recent data on both the employment and inflation sides of our mandate.