Economic Trends
June 2021 | Creighton Institute for Economic Inquiry
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Greetings!
Welcome to our June report covering results from Creighton’s two May 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 very strong economic rebound with significantly elevated inflation. The overall index from Creighton’s monthly survey of bank CEOs in rural areas of 10 states declined to a still strong reading with expanding farmland prices and agriculture equipment sales.
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Creighton University
Jack MacAllister Chair in Regional Economics
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From the Desk of Professor Ernie Goss
Biden’s 'War on Work' Doubles LBJ’s 'War on Poverty': Who Pays for It? Today’s Youth!
Much like President Lyndon Baines Johnson’s 1964 launch of his “war on poverty,” President Biden, since his inauguration, has authorized $1.9 trillion in stimulus spending, and released his fiscal 2022 budget for $6.0 trillion in what could be termed his “war on work.”
In 1964, LBJ pushed the United States Congress to pass the Economic Opportunity Act, which opened the floodgate of 40 federal programs targeted against poverty. Much like LBJ’s explosive federal spending expansion, the New York Times portrayed Biden’s spending foray as "an attempt to expand the size and scope of federal engagement in Americans' daily lives."
In his 4 years in office, LBJ advanced federal spending by 14% per year, and expanded welfare outlays by roughly $800 billion per year. Biden has almost doubled that growth in his first budget year alone by boosting federal spending by 26% compared to pre-pandemic levels.
Biden’s 2020 so-called stimulus spending of $1.9 trillion added $300 per week in unemployment pay on top of regular jobless benefits, plus $1,400 per individual in stimulus checks, and $3,000 per child in financial assistance (all discouraging work). In a recently completed study, Mulligan, Antoni, and Moore concluded that in 19 states, a household of four with two unemployed workers can receive $100,000 in equivalent pay without working (Committee to Unleash Prosperity, White Paper #8).
And who pays for this fiscal indulgence? Between 1964 and 1968, LBJ funded his War on Poverty by raising the nation’s federal deficit as a percent of GDP from 1.0% to 1.5%. Biden, to fund what is termed here as his War on Work, has proposed raising deficit spending as a percent of GDP from pre-pandemic 4.8% to approximately 9.9%, the highest since World War II.
Furthermore, Biden’s Plan would also push the debt held by the public (not counting internal debt) to 111.8% of GDP eclipsing the level suffered in the wake of World War II.
Ultimately the nation’s youth will pay for this overspending via either higher inflation, advancing interest rates and soaring taxes, or a combination of all three.
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Number of the Month
2,274,000
Since the onset of the pandemic in March 2020, the number of job openings in the U.S. has increased by 2,274,000 reaching a record of 9,286,000 in April of this year. There are now 101 job openings for every 100 unemployed workers.
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Goss Eggs
Recent Dumb
Economic Moves
The Biden Administration, led by Secretary of Treasury and economist,
Janet Yellen, reached a backroom deal with G7 nations to force multinational companies to pay higher corporate taxes.
Yellen might as well have said “If the U.S. can’t compete, let’s fix the game.” It should be embarrassing for a U.C Berkley economist (Yellen) to have taught free-market macroeconomics only to now engage in what is equivalent to corporate price fixing. I award 5 Goss eggs only because that is the maximum.
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Mid-America
Manufacturing Strong with Record High Price Gains: One-Third See Soaring Input Prices as Greatest Challenge
May survey highlights:
- Creighton’s regional Business Conditions Index climbed into a range indicating very strong growth for next three to six months.
- The wholesale inflation gauge for the month surged to a record high 96.3 from April’s 96.2, the previous record high.
- Almost one of three, or 30%, of supply managers identified soaring input prices as the greatest 2021 economic challenge for their firm.
- Almost one-fourth, or 23%, of manufacturers named finding and hiring qualified workers as the greatest 2021 challenge to their firm.
- As a result of shortages of workers, average hourly wages for regional manufacturing production workers advanced by a strong 4.9% over the past 12 months according to the U.S. Bureau of Labor Statistics data.
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Rural Mainstreet
Index Soars to Record High:
90% of Bankers Report Labor Shortages Restraining Growth
May survey results at a glance:
- Overall index rocketed to a record high.
- Approximately, 60.6% of bank CEOs reported that their local economy expanded between April and May.
- Almost nine of 10 bank CEOs indicated hiring at their bank and in the area was restraining growth.
- For the first time since 2013, the regional farmland prices expanded for eight straight months.
- On average, bankers reported annual cash rent per acre of $228, which represented growth of 7.3% over the past 12 months.
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The Outlook
Professor Goss' Forecast - June 2021:
- Since December 2020, the University of Michigan’s expected inflation has risen from 2.5% to 3.4% in April. Despite this gain the yield on the 10-year U.S. Treasury bond has not moved above 1.65%. Why? Because the Federal Reserve is buying $80 billion of U.S. Treasury bonds each month putting a lid on this yield. This means that investors cannot gauge the rate of inflation using this yield. A portion of the jump in inflation is transitory but a significant share is not. U.S. inflation (excluding the transitory portion) is approximately 3% - 3.5% (4.5% - 5.0% including transitory). Both well above the Fed’s target.
National Association of Business Economics - May 2021:
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“Results of the April NABE Business Conditions Survey show that conditions continued to improve during the first quarter of 2021. Two thirds of panelists indicate that the vaccine rollout and the new administration have had a positive impact on their view of the economy,” said NABE President Manuel Balmaseda, CBE, chief economist, CEMEX.
- “This optimism is broad-based by sector. Furthermore, respondents see a stronger outlook for growth in inflation-adjusted gross domestic product, or real GDP, over the year ahead than they expected three months ago. Thirty-five percent of panelists anticipate real GDP to expand by at least 6% from the first quarter of 2021 through the first quarter of 2022. That’s an increase from just 5% of panelists in the January survey who expected growth in calendar year 2021 to equal 6% or more."
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The Good
- The Case-Shiller U.S. Home Price NSA Index reported a 13.3% annual home price gain in March from one year earlier.For the first time since the onset of the pandemic, initial claims for unemployment benefits fell below 400,000.
- The U.S. job market added 559,000 jobs in May as the unemployment rate dipped to 5.9% and hourly wages expanded by an annualized 7.2%.
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May’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.
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The Bad
- Creighton’s wholesale inflation gauge from the May Mid-America manufacturing supply manager survey soared to another record high. The U.S. consumer price index climbed by an inflationary 0.8% in April.
- The U.S. budget deficit soared to a record high $1.9 trillion for the first 7 months of the fiscal year.
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The National Federation of Independent Business reported that 48% of small business owners reported unfilled job openings in May, up from 44% in April. May's reading is 26 points higher than the 48-year average of 22%.
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Keep An Eye On
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U.S. Inflation Report. On July 13, the U.S. Bureau of Labor Statistics (BLS) releases its consumer price index (CPI) for June. Recent readings are signaling well above the Federal Reserve’s acceptable level (transitory or not!)
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U.S. Jobs Report. On July 2, the BLS releases its job numbers for June. Another weaker than expected reading (below 400,000) report will be very bearish for the U.S. economy.
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Case-Shiller Home Price Index. On June 29, S&P CoreLogic Case-Shiller will release its home price index for April. Recent releases indicate the extent of a bubble in U.S. home prices.
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