Northwood issues economic outlook 

June begins with relatively strong but disappointing job numbers in May: 559,000 new jobs were created and the US unemployment rate fell to 5.8%.

The economic recovery is clearly continuing, albeit at a disappointing pace in relation to job creation. For the second straight month, new jobs fell short of expectations from economists, who called for more than 650,000 new jobs to be created in May, according to The Wall Street Journal. Today, the U.S. economy is missing 7.6 million American jobs compared to the pre-COVID-19 recession in February 2020 when the United States employed more than 153 million people.

Most labor economists are concerned that the employment rate fell from 61.7% in April to 61.6% in May in May. This is even more difficult to grasp when you consider that average hourly wages rose 0.5% in May alone. The strongest areas for employment growth in May were manufacturing (+23,000 jobs), leisure and hospitality (+292,000) and government (+67,000). Surprisingly, the economy lost 20,000 jobs in construction and nearly 6,000 jobs in retail in May, according to the US Bureau of Labor Statistics.

Positive and negative signs

The bilateral view of inflation is being felt by consumers well beyond rising food prices. Take the transport industry as another example. According to the US Department of Labor, price inflation for used cars and trucks has increased by 21% since the beginning of the year, for new vehicles by more than 3%, for car insurance by 6.1% and for airfares by around 9.6%. Inflation at its root is a cruel consumer tax that pulls money out of consumer wallets through higher prices, causing consumers to spend more with no added intrinsic value in the form of higher prices. To date, most economists remain puzzled about the extent to which our current rise in general prices is due to a) economic recovery, b) government monetary policy, and / or c) excessive government spending. The answer will show up in the months ahead.

The major equity markets were mixed in May. The Dow Jones Industrial Average (DJIA) was up 1.93%, the NASDAQ was up 1.53%, and the Standard & Poor’s 500 was up 0.55%. All three markets are on the up in 2021. If you take the good news from the stock market and combine it with impressive GDP growth to date, a strong economic recovery certainly looks set to continue. However, rising general prices combined with non-economic shocks such as the ransomware attack on the colonial pipeline, which propelled oil, natural gas and gasoline prices up dramatically, especially in the southeastern US, in early May. We fear that these “non-economic attacks” such as ransomware and COVID-19 viruses could continue to threaten the US and global economies in ways that have not yet been imagined and on an unprepared scale in 2021 and in the future. We hope we are wrong and that 2021 is not a repeat of 2020, where at least 2,354 organizations in the US have been attacked by ransomware according to the Emsisoft Report and Statistics 2020; This includes 113 locations for federal, state and local governments, 1,681 schools, colleges and universities, 560 healthcare facilities and 58 public sector data thefts.

Current problems

We believe the following four topics will be among the top topics in measuring the health and stability of the U.S. economy in late 2021 and beyond.

GDP growth. After one of the worst first-half GDP performances in US history, the US economy experienced an unexpected setback in the second half of 2020, with one of the best GDP performances in the second half of US history. The US economy grew 33.4% in the third quarter and 4.3% in the fourth quarter. The U.S. was one of the world’s top performing economies during the global COVID-19 recession and is expected to be one of the top performers this year, according to the U.S. Bureau of Economic Analysis (BEA) and the International Monetary Fund (IMF). The U.S. economy grew 6.4% in the first quarter of 2021 and is expected to grow 10.3% in the second quarter, according to the Federal Reserve Bank of Atlanta. Strong growth in both the US and global economies is putting raw materials, goods and services, and the workforce under pressure. One of the strongest signs of recovery is that more than 13 of the 21 million Americans who lost their jobs during the pandemic can return to work, making it one of the steepest and shortest times of recovery in American history.

Tax and regulatory cuts from 2017. The federal tax cuts, which were passed by Congress and went into effect in 2017 and came into effect in 2018, have given most American taxpayers tax breaks. The tax savings have enabled households to consume more. H&R Block estimated the average personal tax cut at $ 1,200 based on the tax returns they were processing for 2018. In addition, as a result of the 2017 tax cuts, 65% of Americans paid less income taxes, while only 6% paid more, according to the Center for Tax Policy. The abolition of the “Trump tax cuts” of 2017 could be very dangerous for the Democrats in the 2022 midterm elections as well as for the wider economy.

The wealth effect of the stock market. All of the major US stock markets have recovered from their sharp declines in the early days of the pandemic and are at or near record highs today, giving many Americans the feeling of confidence of a stronger, more prosperous America. This increased trust and individual wealth also add upward pressure on prices and purchases of large items such as cars, homes and vacations. Future growth and stability of the economy could be severely hampered by the taxes on wealth and investments (especially capital gains) proposed by the Biden administration.

US national debt. Perhaps our greatest concern for the current state and future of the US economy is the fact that we cannot afford to pay for the massive new government programs proposed by the Biden administration. The United States’ total national debt is now a whopping $ 28.32 trillion, while its debt per capita is now $ 84,984. Given that 52% of American taxpayers pay less than 3% of US federal income tax and our national debt per taxpayer is $ 225,310, the more US national debt increases, our ability to ever pay our national debt becomes less likely. Our national debt is currently almost 128% of GDP (near third world deficit conditions).

Conclusion

For the remainder of 2021, we assume that interest rates will continue to rise. We also assume that the federal government’s economic checks (last issued in February) and the current weekly federal unemployment benefit will not be extended. We see an uncertain path for general inflation in the coming months, much of which will be determined by the development of monetary and fiscal policies by governments.

Dr. Timothy G. Nash (tgnash@northwood.edu) runs the McNair Center for the Advancement of Free Enterprise and Entrepreneurship at Northwood University, which includes the NU outlook. This month’s publication was co-authored by McNair students Bradley Getchel and Ethan Schad.