FORECASTS & TRENDS E-LETTER
by Gary D. Halbert
October 5, 2021

IN THIS ISSUE:

1. US Economy Is Booming, Despite What Media Says

2. Economy Is Expanding Strongly After COVID-19

3. Consumer Spending, Confidence, Retail Sales, Etc.

4. Biden’s $3.5 Trillion Tax & Spend Plan Looks Dead

Overview – US Economy Is Booming, Despite What Media Says

For whatever reasons, the mainstream media wants us to think the US economy is in the dumps. Nothing could be further from the truth. The US is enjoying one of the strongest economic recoveries in decades as we rebound from last year’s COVID-19 recession. I’ll review the latest economic reports as we go along today.

The other good news to report today is the fact that with each passing day it looks less and less likely President Biden will be successful in getting his massive $3.5 trillion tax and spend plan passed in Congress. To get it done with no Republican support, he would need every Democratic vote, and two prominent Dems pledged not to vote for it last week.

There’s plenty to clear up about the economy, so this should be an interesting letter. Let’s get to it.

US Economy Is Booming Expanding Strongly After COVID-19

The US economy has certainly been on a roller-coaster over the last year, having suffered a severe but short recession in 2020 as a result of the COVID-19 induced widespread but temporary lockdowns last year.

It was the worst economic recession in decades. But fortunately, it was only temporary, and the economy is roaring back with the strongest growth in decades as you can see below.

As we can all remember, the economy plunged into a sharp recession with GDP contracting over 30% in the 2Q of last year amid the economic lockdowns and most people staying at home. Fortunately, that period was very brief and the economy came roaring back in the 3Q of last year at an annual rate of over 33%, as you can see above.

The economy has continued to post solid growth since the middle of last year. The latest GDP report released last week had 2Q GDP coming in at an annual rate of 6.7%, up slightly from the Commerce Department’s previous estimate of 6.6%. So, the economy is doing very well indeed.

Now the economy is expected to slow down more as we head into the 4Q of this year. Most forecasters expect growth of 3-4% in the 4Q and into next year, but 3-4% GDP growth is still quite strong, and we should all be happy with it. Yet the mainstream media wants us to think the economy is just terrible.

As I’ve written recently, I don’t understand why the media continues to take such a negative position. After all, they have their guy in the White House and the Democrats control both houses of Congress. You’d think the media would be touting how great the economy is. Who knows why they’re not? Go figure.

Let’s move on and look at some other key economic reports.

Consumer Spending, Confidence, Retail Sales, Etc.

Since consumer spending makes up over 70% of Gross Domestic Product, let’s start there. As you can see in the chart below, consumer spending took a deep dive last summer as many people were locked down at home. Many retailers were closed, and consumers were afraid to get out and shop. What else would we have expected?

Since June, however, consumer spending has rebounded strongly and is now approaching levels not seen since before the COVID-19 pandemic arrived. There is no apparent reason this trend can’t continue, especially with interest rates near historic lows and savings near historic highs. Also, more people are travelling and shopping this year so we should have a strong holiday season just ahead.

Consumer confidence drives consumer spending which makes up over 70% of GDP. As you can see in the chart below, consumer confidence took a huge hit last year during the coronavirus pandemic. It has rebounded powerfully since last summer, even though it has corrected slightly over the last couple of months. The uptrend is expected to continue going forward nonetheless.

Retail sales, another barometer of consumer spending, have shown a similar pattern over the last year or so, taking a huge hit last summer during the lockdowns but rebounding strongly since then. Most forecasters expect retail sales to remain strong through the end of this year and likely into 2022 as well.

The official unemployment rate in the US has plunged from above 14% at the height of the COVID-19 recession all the way down to 5.2% in August. The jobless rate is expected to continue to fall closer to 4% and so-called “full employment” over time, but we have some interesting and unprecedented development going on just now.

As I discussed in my column on September 9, we currently have just over 8 million people unemployed, yet there are nearly 11 million unfilled job openings. There are still 5.4 million fewer jobs in the US today than there were before COVID broke out last year. The question is why? As I wrote in that September 9 Blog:

“Workers are shifting where they want to work — and how. For some, this is a personal choice. The pandemic and all of the anxieties, lockdowns and time at home have changed people. Some want to work remotely forever. Others want to spend more time with family. And others want a more flexible or more meaningful career path.

It’s the “you only live once” mentality on steroids.” Just my theory.

While the unemployment rate did fall to 5.2% in August, the news in that report was definitely not all good. In August, there were only 235,000 new jobs created, the smallest number in years and less than half the pre-report estimate of 720,000. The latest report for September will be released this Friday and hopefully, there will be some meaningful recovery in the jobs numbers. We’ll see.

Biden’s $3.5 Trillion Tax & Spend Plan Looks Dead

President Biden continues to push his unprecedented $3.5 trillion tax and spend plan, which he says would be paid for by higher taxes on corporations and wealthy individuals. In my view, this monstrous liberal wish-list never had a chance of passing.

The president would have to garner every single Democrat vote in the Senate to pass it, plus it would require Vice President Harris’s tie-breaking vote to get to 51 votes. Fortunately, last week two prominent Democratic Senators vowed they will not vote for it in its current form.

Senator Joe Manchin, Democrat from West Virginia, said he would not vote for anything above $1.5 trillion. Senator Kyrsten Sinema of Arizona said essentially the same thing. So, it looks like Joe’s monster bill is dead in the water – unless Mr. Biden can flip these two Dem Senators, which looks unlikely.

While the $3.5 trillion bill may be out the window, I still expect the president to come back with something in the $1.5-$2.0 trillion range just ahead. Even that is a huge amount of spending which will still require big tax increases to pay for it.

The $3.5 trillion tax and spend package would have hurt the economy and jobs significantly, despite what we are being promised. Even a package in the $1.5-$2 trillion range will not help due to the increased tax burden on our primary job creators.

I have a good column in SPECIAL ARTICLES below which explains this in more detail.

The good news is the $3.5 trillion tax and spend bill appears to be history for now. But this won’t stop President Biden from pursuing more big spending proposals just ahead and the tax increases to pay for them – just not $3.5 trillion.

Hopefully, we can avoid such liberal spending and taxing programs until President Biden is presumably out of office in January 2025, or better yet if Republicans take control of the House and Senate in 2022. Of course, all that remains to be seen. Stay tuned!

LATE NOTE: I am reading that this Friday’s unemployment report for September is going to be another big disappointment in terms of the number of jobs created last month. I am also reading that the first estimate of 3Q GDP on October 28 is also going to be a disappointment. I’ll have more analysis on this in next Tuesday’s Forecasts & Trends.

Very best regards,

Gary D. Halbert

SPECIAL ARTICLES

Biden’s $3.5 Trillion Tax & Spend Plan a Disaster For Economy

If $3.5 Trillion Plan Fails, It Will Be Seriously Bad News For Biden

Gary's Between the Lines: August Unemployment Report Was A Bust – Implications

 

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