FORECASTS & TRENDS E-LETTER
by Gary D. Halbert
August 10, 2021

China On-Track To Overtake US GDP – But Not 2021 Olympics

IN THIS ISSUE:

1.   July Jobs Report Was Stronger Than Expected

2.  China’s Economy Set To Surpass US GDP By 2028

3. US Nudged Out China In Olympic Gold Medal Race

Overview

Demographers now project that China, with its record large population of nearly 1.4 billion people, will overtake the US as the world’s largest economy by 2028, if not even sooner, a few years earlier than previously predicted, based on the latest GDP figures for 2020.

I thought I would frame today’s commentary on China vs. America in the context of the latest Tokyo Olympics. China is consistently gaining ground on America in many areas: economically, technologically and numerous others – and even made a run on the US for gold medals at the just concluded 2021 Olympics – but fell just short.

At this year’s Tokyo games, the US came out on top with 39 gold medals to China’s 38 golds. In overall medals (gold, silver, bronze) the US won 113 – fully one-third of all 339 medals awarded and by far the most of any country – to China’s 88 and Russia’s 71. I’ll have more comments on the Olympics below.

Before we get to those discussions, let’s start with a review of last Friday’s very strong jobs report for July. The Labor Department reported that more new jobs were created in July than forecasters predicted, and the unemployment rate fell to the lowest level in nearly two years. Let’s get started.

July Jobs Report Was Stronger Than Economists Expected

America’s employers added 943,000 net new jobs in July, and the unemployment rate ticked down more than expected to 5.4% as the US economy continues to bounce back with surprising vigor from last year’s coronavirus shutdown.

The report, issued by the Department of Labor on Friday, was the latest sign that the reopening of the economy is propelling a strong rebound from the pandemic recession. The July numbers exceeded economists’ forecast for around 860,000 new jobs. Plus, the Labor Department also revised upward the number of new jobs created in May and June – good news all around.

Hotels and restaurants, which are reopening and doing brisk business, added 327,000 jobs last month. Local public schools added 221,000. Numerous other sectors also reported above-forecast gains in new job creation last month.

The number of people who reported they had jobs skyrocketed by 1 million in July, pushing the jobless rate down from 5.9% in June. That’s a sizable drop in one month.

Average hourly earnings also increased more than expected, rising 0.4% for the month and are up 4% from the same period a year ago. This is the best annual wage growth in years – at a time when concerns are increasing about persistent inflationary pressures.

The drop in the headline unemployment rate looked even stronger considering that the Labor Force Participation Rate ticked up to 61.7%, tied for the highest level since the pandemic hit in March 2020. 

At the same time, the US is fighting a continuing battle with a scarcity of labor. There were still 9.8 million job openings as of July 16, far more than the 8.7 million considered unemployed.

In a survey of 5,000 job seekers, however, the amount of those citing health concerns as a reason for not looking for a job declined, with a growing number citing a lack of need due to a financial cushion as the top response. Fortunately, the stimulus checks are ending, and more workers are starting to look for jobs.

The good news is, the unemployment rate has tumbled from a pandemic high of 14.8%, but even at 5.4% in July, it remains well above the 3.5% low before the pandemic crisis. Federal Reserve policymakers have vowed to keep ultra-easy monetary policy in place until they see stronger signs of full employment.

The Fed may have to reconsider that commitment before long, however, if inflation continues to rise significantly as it did the last couple of months. We’ll just have to wait and see.

China’s Economy To Surpass US GDP By 2028, Maybe Sooner

China is set to overtake the United States as the world’s largest economy a few years earlier than anticipated, in large part due to the coronavirus pandemic, analysts have concluded. US deaths due to COVID-19 are a staggering 634,000 according to Worldometers.info and The New York Times versus China which according to the same sources has had only 4,636 COVID deaths – although many question that number. In any event, China’s COVID deaths are much lower.

The US reported earlier this year that Gross Domestic Product – the sum of all goods and services produced – in 2020 contracted by 2.3% to $20.93 trillion in current-dollar terms.  In contrast, China reported its GDP expanded by 2.3% last year to 101.6 trillion yuan – or $14.7 trillion (based on an average exchange rate of 6.9 yuan per US dollar).

This puts China’s economy only $6.2 trillion behind the US, down from $7.1 trillion in 2019. Rob Subbaraman of Nomura Research Institute, a large international consulting group, recently cautioned:

“This divergence in growth is consistent with our view that the pandemic has been a much larger blow to the US economy than China’s economy. We believe that on reasonable growth projections the size of China’s economy in USD terms will overtake the US in 2028.” [Emphasis added.]

The yuan began strengthening against the US dollar in the last half of 2020 to levels not seen in more than two years. Regarding this, Mr. Subbaraman added:

“If the Chinese currency strengthens further to around 6 yuan per U.S. dollar, China could surpass the U.S. two years earlier than anticipated – in 2026.” [Emphasis added.]

I don’t bring these latest projections to alarm anyone. The fact that China will overtake the US as the world’s largest economy at some point in the next 10 years should not surprise anyone. With a population four times the size of the US, it is inevitable China will overtake us in terms of the economy at some point.

US Nudged Out China In Olympic Gold Medal Race

I watched the Olympics most evenings over the two weeks of coverage, and I really enjoyed it. I salute Japan for hosting a very successful Olympics despite unprecedented, difficult circumstances. I even thought NBC did a fairly reasonable job broadcasting the games, although the network got a lot of criticism.

In the end I am so happy the US was able to nudge China out of the gold medal race and, as usual, dominated the overall medal count. We took fully one third of the 339 total medals awarded, as you can see below.

TV viewership in the US fell off a cliff this year, down over 50% according to the media pollsters. The live morning broadcast of the opening ceremony and the prime-time replay drew the lowest ratings for an opening ceremony in 33 years, with just under 17 million viewers.

The prime-time coverage drew only 16.8 million nightly viewers on average, down from nearly 30 million for the Rio games four years ago. NBC reportedly gave paid sponsors some free ad spots to make up for the much smaller audience than was expected.

Some speculated the drop-off in viewership was due to the absence or early exits of popular athletes from some events, including the gymnast Simone Biles, the runner Sha’Carri Richardson, the tennis champion Naomi Osaka, basketball star LeBron James and others – though I’m not so sure.

I think it may be more due to the vast array of options Americans had to watch the Olympics. In addition to NBC, viewers had the option to watch CNBC, USA Network, the Olympic Channel, the Golf Channel and the Spanish-language channels Universo and Telemundo. We have Time Warner cable at our house, and I had four different channels where I could watch the Olympics.

My only real disappointment with this year’s Olympics was the US women’s soccer team winning a bronze medal. Given that all the team, but one player, and the coaches knelt for the National Anthem, I hoped they would not win a medal! At least they didn’t win gold as they were widely expected to do going into the games.

Kudos to Carli Lloyd, widely considered to be one of the best female soccer players in the world, who elected NOT to kneel with her teammates, as you can see below.

Good for her! I wish her all the best in her soccer career! I’ll leave it there for today.

Best personal regards,

Gary D. Halbert

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