2021 Economic Forecast by Dr. John Mitchell

New Year, Same Virus, Altered State Coeur d’Alene Regional Chamber of Commerce January 19, 2021 John W. Mitchell

Late January 2021 

Heading for the Second Year of A Pandemic-”An invisible force that pushes us physically apart” Apollo’s Arrow by Christakis

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Not New in Human History But New on This Scale to Us

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An Economic Contraction by Exogenous Shock and Government Edict

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Only State With Annual Job Growth in November

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A Regressive Downturn Hitting the Service Sector

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A Late Year Slowing-Resurgent Infections

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We have Witnessed Massive Macro Policy Moves With More Proposed

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US Finished a Year with the Lowest Population Growth Rate Since 1900 .35%

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Embarking on the Process of Vaccinating Most People on the Planet

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A Test of the Resilience

Job Growth Update November 2020 Data Year over Year Change – 49 States Down Source: BLS, ASU 

Kansas16

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Maryland 17

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Virginia 18

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Oklahoma 19

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Florida 20

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Colorado 21

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North Carolina 22

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Louisiana 23

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Wyoming 24

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Iowa 25

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Kentucky 26

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Washington 27

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Alaska 28

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Idaho 1

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Utah 2

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Alabama 3

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Mississippi 4

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Arizona 5

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Nebraska 6

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Arizona 7

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Montana 8

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Arkansas 9

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South Dakota 10

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South Carolina 11

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Indiana 12

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Missouri 13

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Connecticut 29

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Tennessee 14

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West Virginia 30

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Texas 15

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Ohio 31

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Oregon 32

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Minnesota 33

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New Mexico 34 Illinois 35 Wisconsin 36 North Dakota 37 Maine 38 Rhode Island 39 Pennsylvania 40 Nevada 41 New Jersey 42 California 43 Delaware 44 New Hampshire 45 Vermont 46 Massachusetts 47 Michigan 48 New York 49 Hawaii 50

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Output and Employment (The Partial Snapback) Until December Monthly Changes Payroll Jobs (BLS)

Real GDP Q4 19-Q3 20 (SAAR) Source: BEA

10,000,000 5,000,000 0 -5,000,000 -10,000,000 -15,000,000 -20,000,000 -25,000,000

40.00% 30.00% 20.00% 10.00% 0.00% -10.00%

Q4 19

Q1 20

-20.00% -30.00% -40.00% Source: BEA

Q2 20

Q3 20

Change in Employment March to April 2020 (-20,787,000) Government Other Services Leisure&Hosp.

Ed&Health Business Services Finance Information Trans,Ware,Util Trade Manufacturing Construction Mine/Log Total -25,000,000

-20,000,000

-15,000,000

-10,000,000 Source:BLS

-5,000,000

0

December 

Unemployment Rate Remained at 6.7%

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The Over the Month Change -140,000

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Leisure and Hospitality -498,000, Government -45,000, Educational Services 62,500, Couriers, Messengers, Warehouse 45,600, Health Care 39,000, Temp Agencies 67,600

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Average Hourly Earnings up 5% over the Year with Declines in Low Wage Employment

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In December 15.8 million people reported that they had been unable to work because their employer closed or lost business due to the pandemic.

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7.3 Million People Out of the Labor Force Currently Want a Job

Percentage Point Contributions to Real GDP Growth Q4 19, Q1 2020, Q2 2020, Q3 2020 Source: BEA 30 20 10 0 -10

Consumption Non-Residential Construction

Equipment

Intellectual Property

Residential

Govt.

-20 -30 Q4 2019

Q1 2020

Q2 2020

Q3 2020

Exports

Imports

Inventory

0.8 0.6 0.4 0.2 0 -0.2 -0.4 -0.6 -0.8 -1 February April June August October December February April June August October December February April June August October December February April June August October December

Monthly Change in the CPI 2017-20

Year over Year December Total 1.4 % and 1.6% Core

Source: BLS

Monetary Policy Back to the Zero Bound 1 Year 1/2/20 1.56% 12/31/20 .1% Mortgage Rates Below 3%

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Fed cut Funds Rate Twice in March-Back to Zero Bound

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Broad Liquidity Support

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Now Buying $120 Billion Per Month in Govt. Securities

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PPP and Main Street Lending

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Security Holdings up about $3 Trillion in the Last Year

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Rate Projections- Here until end of 2023

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New Operating Procedure-Tolerate Inflation above 2% after Period of Below Target

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No Move Soon Powell 1/14/21

Fed Funds and 10 Year 10 Year Less Than Inflation Rate at 1.1% 1/15/21 Note the Movement Up at Prospects for More Spending

Fiscal Policy Unaccustomed Speed 

Five Corona Virus Bills Passed: Stimulus Checks, Forgivable Loans, Boosted Unemployment Compensation, Help to Hospitals, States and Cities, Testing Funds, Expanded Sick Leave etc.

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About $4 Trillion in New Spending

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In Fiscal 2020-The Deficit hit $3.1 Trillion with Spending up 47% to $6.5 Trillion and Revenues Down 1% to $3.4 Trillion- 16.1% of GDP Highest Since 1945

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Year to December $3.3 Trillion- 1st Q Fiscal 2021 Deficit up 61%

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Biden Proposal $1.9 Trillion: Additional $1,400, Child Tax Credit, $350 Billion State and Local, Extend Eviction and Foreclosure Moratorium, More Testing, More Vaccinations, Minimum Wage to $15

Fiscal Policy In Action (%,SAAR, BEA) Personal Income

Earnings

Transfers

35.8

-27.5

853.9

-10

32.8

-64.9

Q2

42

-25.4

684.5

Q3

-15.6

37.4

-74.9

US Q2 Q3 Idaho Source: BEA

Late January Questions and Cross Currents 

Fate of the New Proposal after this Week?

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Vaccine-Apparent Success-Production, Distribution, Acceptance and Timing?

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New Political Dynamic

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How long will the Post Holiday Surge last?

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Short Term Angst-Long Term Excitement!

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What is the condition of the wounded individuals, businesses, non-profits, governments?

Zombie Firms?

A Grand Experiment

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Modern Monetary Theory-Spend What Need To In Order to Achieve Goals

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We Create the Money so Bankruptcy has no Meaning

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The Deficit Worries Have not Come to Pass-Crowding Out, Rising Rates, High Inflation, Inability to Sell Debt

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Tighten When Press Capacity-Grow Way Out As After WWII

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Look What We Have Seen Over the Last Year, Month or Week

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This Becomes Cover for Anything-Green New Deal, Defense, Infrastructure, Health Care

Looming

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Exploding Health Care Costs-Alzheimer’s, Dementia-Functioning but not Life Expectancy, Increasing Dependency Ratios

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Global Workforce Slowdown- The Great Demographic Reversal by Goodhart & Pradhan

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Public Debt Increase Much of It Short Term

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US Government Passing Out Money in Matter of Hours-Not Based on Need or Losses

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Interest Rate Implications-Inflation Risks? But When?

Idaho 

Population Growth 2.1% 2019-2020 US .35%

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FHFA Q3 2020 All States Up Idaho #1 at 14.36% WA #3 at 10.8%

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Cities Boise #1 at 16.38% Purchase Only

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CoreLogic Negative Equity in Q3 Idaho 1.6% National at 3%

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To November Idaho Building Permits Down 1.5% from Same Period in 2019

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November Unemployment Rate 4.8%- National 6.7%

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Top 50 State to State Moves 2019: 1.CA-Texas 2. NY to Florida, 3. CA to Arizona, 8. CA to Oregon, 13. CA to WA 19. CA-Idaho

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December 9-21 Census Pulse Survey 566,695 adults in Idaho lived in households that had experienced loss of employment income since March 13th

Idaho Employment YoY November .7% February=100

Government 102 100 98 96 94 92 90 88 86 84 82

Other Services Leisure&Hosp.

Ed and Health Pro BusServices Financial Information T,W,U Trade Manufacturing Construction

Source BLS

Mine&Log Total -6000

-4000

Source: Dept. Labor -2000 0 2000

4000

6000

Track the Recovery Chetty, Friedman, Hendren, Stepner

Track the Recovery Chetty, Friedman, Hendren, Stepner

Kootenai County 

2018-2019 2.8% Population Growth about 5 Times National Average up 19.3% from 2010 to 2019 about 27,000 People

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Personal Income Growth 18-19 5.6% to $7.7Billion

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$728 Million Residence Adjustment for People who Work Outside But Live Here

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42.9% of Income D,I,R and Transfers in 2019

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Residential Permits to November 2020 up 6.3% to 2,349, National Figure 4.5%

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Regional Price Parities 2019 BEA CDA 93.5, Spokane 96.5, Seattle 114.5, US 100

Coeur d’ Alene and Idaho Wage and Salary Employment Percent Change from 2019 by Month Source: BLS, ID Dept. Labor 4.00% 2.00% 0.00%

Jan-20

February

March

April

May

June

July

-2.00% -4.00% -6.00% -8.00% -10.00% -12.00% -14.00% Coeur d Alene

Idaho

August

September

October

November

Coeur d’Alene CDA Employment YoY November -3.4%

February=100 102 100 98 96 94 92 90 88 86 84

Government Other Services Leisure&Hosp.

Ed and Health Pro BusServices Financial Information Trade,TP,Util Manufacturing Construction Mine&Log Total -3000

-2000

-1000

0

Source: Dept. Labor

1000

2000 Source BLS

Track the Recovery Chetty, Friedman, Hendren, Stepner

The Outlook 

The Recovery is Underway, But the Trajectory is Uncertain 

Expectations for 2021 3.5-4.5% Growth in GDP

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Idaho Employment Growth-Consensus at 3.3% in 2021 after a drop of 1.9% in 2020

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But

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Virus Course

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More Stimulus

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Vaccination Program

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Behavior

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Upside Risks-Vaccine Rapid Distribution and Acceptance, Balance Sheet Strength, High Level of Savings-Relief Spending(1920s and after the Black Plague 1340s)

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Downside Risks-Renewed Restrictions, B.1.1.7. Variant, Damage at this Point that is Invisible

Local Expectations 

Leisure and Hospitality Drag Diminishing with Vaccine and Time

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The Flow to Lower Cost Attractive Areas will Continue we have seen business firms do it, but the pandemic was a forced experiment that demonstrated remote and work from home possibilities.

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Housing/Construction Complex Continue to Grow-Spokane/Spokane Valley and Coeur d’ Alene Metro Areas

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Stronger Commodity Prices Support Forest Products and Other Commodity Sectors

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2020 Will in the Rearview Mirror have been a Hiccup in a Period of Strength

The Pandemic as an Accelerant

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Online Shopping

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Regional Dispersion

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Connectivity/Digital Divide

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Digital Payments

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Income Distribution Issues

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Healthcare System

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Vaccine Development

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Coping With Change

The Disruption, Destruction and Creation 

Human Tragedy

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Global Poverty Increase

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Viability of Business Models-List of Firms Bankrupt or In Liquidation

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Industrial and Sector Impacts-Travel, Tourism, Restaurants, Aerospace, Public Transit, Education System

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Booming: Grocery Stores, Bike Shops, RV, Cleaning Products, Video Conferencing, Home Remodeling, Pet Shops, Amazon, Plexiglass, Distribution

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New Ways Replacing Old-This is Schumpeter’s Creative Destruction on Steroids and with that comes Shifting Employment and Skill

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Opportunity Cost?

How Will This Change Us and the System In All the Roles We Play? 

Savings Behavior 1/20 7.6%, 4/20 33.7%,10/20 13.6%, 11/20 12.9% Source: BEA

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How long for People to Emerge from Trauma and be comfortable Going Out, Movies, Crowds, Trips? Look at How Your Own Patterns have Changed? What New Habits will Persist? Conferences?

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Time Around the House-Remodel, Size, Furnishings, Classroom, Office

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Supply Chain Importance, Location, More Inventory-Just in Time to Just in Case, Regional Networks-Lots More Attention-Alternatives

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Remote Work (WFH) or Live Anywhere-Blip or Lasting Trend?

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Geographic Implications of the Trauma? Suburban, Smaller Cities, Milder Climates?

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Monetary/Fiscal Policy Institutions-Independence of Fed

The Long Shadow and Leftovers Of This Interlude 

Plans Disrupted, Assumptions Changed, Downside Risks Increased, What is the worst case now for planning?

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What business entities will survive? Particularly small! Deferrals, Forbearance, Eviction Moratoriums

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Education Disruption-Lifetime Implications, Poor Bear The Brunt, Declining College Enrollments

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Participation Rates-Stay Home, Income and Experience Loss, Drop Out

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Retirement Resources Depleted by Job and Income Loss ,Premature Retirement, Using Retirement Savings Early

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Millions of People with Covid-19-The Long-Term impacts-Cardiac, Renal, Pulmonary damage

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The Safety Net Fissures-Highlighted by the Pandemic-Sick Leave, Insurance tied to employment, Essential Low Wage Workers-Will they be addressed?

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Soaring Wealth Disparities-Financial Assets, Home Prices- Net Worth rose $8.3 Trillion in Q2 and $3.8 Trillion in Q3

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Will Fiscal/Monetary Policy change when we approach capacity limits and inflation accelerates? Rising Rates with Enlarged Debt Burden

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The Trade Conflicts have been Overshadowed, But They are not Gone-What will be the system for a Multipolar Word and What will be Our Role? COVAX, WTO, WHO, UN, Paris Accord, TPP

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The Way We Were Is Not The Way We Are

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Stay Safe