Economic Trends 
December 2020 | Creighton Institute for Economic Inquiry  

Welcome to our November report covering results from Creighton’s two November economic surveys. Creighton’s monthly survey of supply managers and procurement experts in nine Mid-America states indicates economic growth is in a range indicating that the regional economy is experiencing a healthy economic rebound, but current employment remains below pre-Covid-19 levels. The overall index from Creighton’s monthly survey of bank CEOs in rural areas of 10 states fell below growth neutral for November, but with stabilizing and even expanding farmland prices.

Happy Holidays to You, Your Family, and Friends!
Creighton University
Jack MacAllister Chair in Regional Economics
Law Books
From the Desk of Professor Ernie Goss
Will Biden Forgive Student Loans?
Why Not Automobile Loans?

A kettle of progressive Democrats is demanding that President-Elect Biden issue an executive order extinguishing student debt in the first week of his reign. Past and present students currently owe $1,700 billion (yes that is $1.7 trillion). Since 2006, student debt has expanded by 253.4%, while income to pay the debt has advanced by one-third that pace, or 79.8%. But there are clear problems and benefits of such action.
Wrong Beneficiaries? It has been well documented that income inequality has soared over the past five decades as college educated incomes rose at a much faster pace than workers that did not earn a two-year, or four-year degree.

Except during the Trump Administration, the top 20% of income earners received a greater share of income than the bottom 80% of earners. Furthermore, higher education institutions have sucked up much of the rocketing student debt in the form of higher tuition and fees which, since 2006, expanded at 2.5 times the rate of growth in prices of other consumer goods and services.
Fairness? This month, 45 million of the U.S. population owed approximately $38,000 per individual. Thus, the remaining 284 million Americans either have paid off their student debt, or never received a student loan. How fair will the many view shifting $1.7 trillion to the favored few? Furthermore, any delay in making an executive decision, either yes, or no, will only incentivize student debtors to further delay payments, and even ramp up their borrowing.
Productivity? Economic theory postulates that higher productivity begets higher income. The latest Bureau of Labor Statistics data show that a college graduate earns 71.0% more than a high school graduate without any college experience. Thus, other factors unchanged, encouraging more individuals to earn their college degree will stimulate higher productivity and economic growth.
Economic Stimulus? It is argued that forgiving $1.7 trillion in student debt will help pull the economy out of the current recession. However, the multiplier of providing $1.7 trillion in direct payments to consumers that spend the funds on goods and services will be between 0.08 and 0.23, compared to 0.36 for small business aid, and 0.60 for unemployment benefits, according to the Committee for a Responsible Federal Budget.
The question for the Biden Administration is, will the stimulative productivity impact of debt forgiveness offset the many negatives of such a move? I have serious doubts.
Number of the Month

This is the compound
annual hourly wage growth for production,
non-supervisory workers during the Trump Administration. This compares to 2.87% for the Clinton Administration, 2.76% for the Bush Administration, and 1.71% for the Obama Administration. Assuming these same growth rates until 2030, here are average annual wages for production, non-supervisory workers in 2030: Trump $55,326, Clinton $54,797, Bush $54,155 and Obama $48,370.

Goss Eggs 
Recent Dumb 
Economic Moves

Last week, Nasdaq Exchange officials filed a proposal with the Securities and Exchange Commission (SEC) to adopt listing rules, which would require all 3,300 listed companies to have, or explain why they do not have, at least two diverse directors, including one who self-identifies as female, and one who self-identifies as either an underrepresented minority, or LGBTQ.
Will board members be required to self-identify to which group they belong? Companies must use non-discriminatory criteria for hiring and appointments based on measures related to productivity, and productivity alone.

Index Drops First Time Since April, Economic Outlook Plummets

November survey highlights:
  • The regional Business Conditions Index remained above growth neutral for the sixth straight month.  
  • Since bottoming out in April, regional manufacturing has gained back roughly 37,000, or 2.7%, of the initial non-farm job losses from COVID-19.
  • Approximately 52.9% of supply managers from the November Creighton survey indicated their firm had hired back all COVID-19 furloughed workers,
  • The wholesale inflation gauge rose its highest level since June 2018.
  • Supply managers economic outlook, or business confidence, plummeted for the month.
  • Approximately 45.5% of supply managers reported their employer increased the employee health care insurance contribution for 2021.

Rural Mainstreet 
Index Retreats for First Time Since April: Bankers Expect 3.1% Decline in Holiday Sales

November survey results at a glance:
  • Moving below growth neutral, the overall index fell for the first time since April of this year.
  • For the first time since 2013, Creighton’s survey recorded back-to-back increases in monthly farmland prices.
  • Compared to 2019, bankers expect 2020 retail sales to be down by 3.1%. Approximately, 54.8 % anticipate a reduction from 2019, and 16.1% project an upturn from last year’s holiday sales.
  • The November loan volume reported record lows as the index fell to its lowest since the initiation of the survey in 2006.
  • Bankers project 9.2% of grain farmers will experience negative cash flows for 2021, down from 12.4% expected from the November 2019 survey.

View the complete Rural Mainstreet Report.
The Outlook

Professor Goss' Forecast - December 2020:

  • Expect the yield on U.S. long-term Treasury bonds, along with mortgage rates, to climb by as much ¼% (25 basis points) by the end of Q1, 2021.
  • The December job additions will be solid, but somewhat disappointing in comparison to November’s.
  • Annualized and seasonally adjusted Q4 2020 GDP growth will range between 3%-4%.

The Conference Board:

  • 2021 US: The US economy will recover from COVID-19, but It may be forever changed.
  • “Following signs of improvement in Q3 2020, The Conference Board expects a lull in the pace of recovery Q4 2020. Gains in consumption will be limited by high unemployment rates but will likely accelerate again in 2021 as the labor market heals. In the medium term, a contraction in the quantity of labor due to the pandemic and the exiting of baby boomers from the labor force will hinder US economic growth potential between 2020 and 2023 (the COVID-19 period). Real GDP growth should meaningfully improve between 2024 and 2030 as these labor market effects wane somewhat and productivity growth accelerates.”
The Good

  • According to the Case-Shiller national home price index, housing prices expanded at an annual pace of 7.0% in September.
  • U.S. employers added 245,000 jobs for November and unemployment declined to 6.7% from 6.9% in October.
  • U.S. exports and imports rose in October reflecting growth in the global economy (exports 2.2%), and the U.S. domestic economy (imports 2.1%).
  • Purchasing management indices (PMI) for both ISM’s national survey and Creighton’s Mid-America were in a range indicating healthy manufacturing growth.

Work - Image
The Bad

  • Nearly 36.9% of the unemployed have been out-of-work for more than 26 weeks.
  • October seasonally adjusted retail sales climbed a mere 0.3% from September.
  • The federal deficit jumps $284 billion in October. And that does not include the $900+ billion stimulus program currently being debated before Congress.
Keep An Eye On

U.S. Retail Sales report:  On Dec. 16 and Jan. 15, the U.S. Census Bureau releases retail and food services sales for November and December, respectively. Look for weaker reports to signal a buying pullback by the U.S. consumer.
U.S. Jobs Report. On Jan. 8, the U.S. Bureau of Labor Statistics releases its job numbers for December. Another disappointing report (lower job growth) and another drop in size of labor force will indicate that the V-shaped recovery is resembling a Swoosh, or check mark.

Creighton’s Rural Mainstreet report. On Dec. 17, Creighton releases its December survey results of bank CEOs in rural areas of 10 states in the Rocky Mountains and Plains states. Growth in the rural economy has been slowing, and performing at a pace below urban areas.
U.S. Retail Sales report.  On Nov. 17 and Dec. 16, the U.S. Census Bureau releases retail and food services sales for October and November, respectively. Look for weaker reports to signal a buying pullback by the U.S. consumer.
ISM’s Creighton’s Mid-America PMIs. On Dec. 1, ISM and Creighton release manufacturing survey results for November. Partial reversals of previous gains could be very bearish.
Creighton’s Rural Mainstreet report. On Nov. 19, Creighton releases its November survey of bank CEOs in rural areas of 10 states in the Rocky Mountains and Plains states.  The rural economy has been performing at a pace below urban areas.   
Ernest Goss, Ph.D.