Economic Trends 
April 2021 | Creighton Institute for Economic Inquiry  

Welcome to our April report covering results from Creighton’s two March economic surveys. Creighton’s monthly survey of supply managers and procurement experts in nine Mid-America states indicates that economic growth is in a range indicating that the regional economy is experiencing a very strong economic rebound. The overall index from Creighton’s monthly survey of bank CEOs in rural areas of 10 states climbed to a record high for March with expanding farmland prices and agriculture equipment sales.  
Creighton University
Jack MacAllister Chair in Regional Economics
TAX Sign - Image
From the Desk of Professor Ernie Goss
Biden Taxes Will Reduce Global Competition, Slow Growth: Practice What You Preached Dr. Yellen

Since taking office, the Biden Administration has passed a $1.9 trillion stimulus bill to fuel an economy that was already expanding at a very healthy pace. Now President Biden is advancing a so-called $2.0 trillion “infrastructure” bill. 

To pay for a portion of this exploding spending, the president has called for an increase in the corporate income tax rate from 21% to 28%, and a boost in the income tax rate on households making more than $400,000. The added corporate tax rate is on top of state the assessment of 44 states and D.C. that have corporate income taxes on the books ranging from North Carolina’s single rate of 2.5% to a top marginal rate of 11.5% in New Jersey.

An increase in the federal corporate tax rate to 28 percent would raise the U.S. federal-state combined tax rate to an average of almost 34% and would be the highest among the 37 OECD nations which have an average corporate rate of 22% with lowest rates for Ireland at 12.5%, and Switzerland at 8.5%. This increase would harm U.S. economic competitiveness and increase the cost of U.S. firms. The Tax Foundation estimated that the hike would reduce long-run GDP growth by approximately one-fourth, eliminate 159,000 jobs, and reduce wages by 0.7%.

But instead of engaging in global competition, the Biden Administration is attempting to coerce OECD members into raising their rates. To quote ex-academic economist, Federal Reserve Chairman, and current U.S. Treasury Secretary Janet Yellen, “Destructive tax competition will only end when enough major economies stop undercutting one another and agree to a global minimum tax.”

I guess she only believed in market-based economics and competition when she was teaching macroeconomics at the University of California-Berkley. Welcome to the 21st Century Dr. Yellen. The U.S. must compete in the global economy, not attempt to fix prices, and limit competition. This is not legal for companies in the U.S., and should be verboten for OECD nations.
Number of the Month

The National Association of Home Builders reported “unprecedented spikes in lumber prices have added more than $24,000 to the price of the average new single-family home” in the U.S.
A large share of this price growth can be attributed to the 20% tariff on Canadian lumber (cut to 9% in December, but likely to be raised again by the Biden Administration).
Goss Eggs 
Recent Dumb 
Economic Moves

Jamie Dimon, CEO of JP Morgan, showed just how aligned BIG business is with BIG government when he asserted that “taxes are going to have to go up: you can’t run a 10% to 15% (budget) deficit forever.” I guess trimming federal spending is not in the playbook for a CEO hoping for a plum position in the Biden Administration.

Manufacturing Remains Strong: Shipping & Transportation Bottlenecks Slow Recovery

March survey highlights:
  • Creighton’s regional Business Conditions Index climbed into a range indicating very strong growth.   
  • The speed of the delivery of raw materials and supplies slowed to its lowest pace on record. 
  • The wholesale inflation gauge indicates substantial upward price pressure.
  • More than eight of 10 supply managers reported supply bottlenecks and delays for February and March.
  • More than one in four manufacturers named shipping and transportation delays as a top factor producing supply bottlenecks. 
  • Since bottoming in April of last year, the region has added almost 46,000 manufacturing jobs.

Rural Mainstreet 
Index Rockets to Record High:
More Than Two-Thirds of Bankers Reported Expanding Local Economy

March survey results at a glance:
  • Overall index rocketed to a record high for the month.
  • Approximately, 68.8% of bank CEOs reported an expanding local economy, while the remaining 31.2% indicated little or no growth.
  • The farmland price index advanced its highest level since November 2012.
  • The farm equipment-sales index rose to its highest reading since February 2013.
  • Approximately 82.8% of bank CEOs recommended the Federal Reserve raise interest rates by at least one-fourth of one percentage point in the next 12 months.
  • Despite recent job gains, the region’s nonfarm employment level remains 218,600 jobs below its pre-COVID-19 level.
View the complete Rural Mainstreet Report.
The Outlook

Professor Goss' Forecast - April 2021:

  • Since the presidential elections, the yield on U.S. long-term Treasury bonds has expanded from 0.83% to 1.64%. I expect that yield to climb by another ¼% (25 basis points) by the end of Q2, 2021. Mortgage rates, which have expanded by 0.41% (41 basis points), will rise by another 25 basis points by the end of Q2, 2021.
  • Annualized and seasonally adjusted Q1 2021 GDP growth will range between 7% to 8%.

The Conference Board (March 10, 2021):

  • The Conference Board forecasts that US Real GDP growth will rise to 3.0 percent (annualized rate) in Q1 21 and 5.5 percent (year-over-year) in 2021. Following a lull in the economic recovery in November and December, growth has improved. We expect real GDP growth to accelerate further over the coming quarters as new COVID-19 infection rates steadily decline, the vaccination program expands, and an additional large fiscal support program is deployed. Following a robust recovery in 2021, we forecast economic growth of 3.5 percent (year-over-year) in 2022.”
  • “While the economy has already partially rebounded from the deep contraction in the first half of 2020, a variety of factors will determine the way forward. Key variables include: a) the spread of the virus itself, b) the deployment and effectiveness of COVID-19 vaccines, c) the size and timing of fiscal support, and d) the status of labor markets and household consumption; and (e) the pace at which mobility and travel restrictions are lifted. While there are many possible outcomes for these factors, The Conference Board has generated three potential recovery scenarios based on specific sets of assumptions.”
The Good

  • Over the past 12 months, according to the Case-Shiller national home price index, housing prices expanded by 11.2% in January (one of the highest on record).
  • Total non-farm employment rose by a whopping 916,000 in March as the unemployment rate fell to 6.0%.
  • March’s Purchasing management indices (PMI) of supply managers for both ISM’s national survey and Creighton’s Mid-America approached record highs indicating very strong manufacturing growth.

The Bad

  • The downward trend in claims for unemployment compensation has reversed with two straight weeks of rising first-time claims (over 700,000 each week).
  • The producer price index has risen by 2.8% for the first three months of 2021. This compares to 0.9% for the previous three months.
  • The U.S. budget deficit soared to $1 trillion between October 2020 and February 2021. Spending rocketed 25% and tax collections jumped 5% during the period.
Keep An Eye On

  • U.S. Inflation Report. On May 12, the U.S. Bureau of Labor Statistics releases its consumer price index (CPI) for April. Recent readings are signaling higher interest rates ahead.
  • U.S. Jobs Report. On May 7, the U.S. Bureau of Labor Statistics releases its job numbers for April. Another strong report will put upward pressure on long-term interest rates.    
  • Gross Domestic Product. On April 19, the U.S. Bureau of Economic Analysis releases its Q1 GDP estimate. The New York Federal Reserve is estimating between 6% and 7% (annualized). I think it is going to come in stronger than this, thus placing upward pressure on expected inflation and interest rates.
Ernest Goss, Ph.D.