U.S. Economy Summary
Real gross domestic product (GDP) for the full year 2021 will rise 6.5 percent, boosted by Federal Reserve policy that attempts to keep interest rates low until early 2023.Stimulus spending, previously passed by the federal government and funded largely via deficits, is at record levels (budget deficits in 2020 and 2021 total $6.8 trillion). Although these deficits are fueling consumer spending and investment, they are at the risk of 1970s-style double-digit inflation. The gross federal deficit will be up 33 percent this year versus the end of 2019, rising $10 trillion during the last two years to $30.2 trillion.The Federal Reserve’s low-interest policy should provide liquidity into the banking system to allow for sufficient credit for businesses and individuals.Existing home sales and housing starts continue to be strong, boosted by very low rates, a movement away from cities to more open suburban and rural areas, and an increase in remote working.Interest rates, including mortgage rates, remain low, which will offset some of the price increase in new and existing homes and improve housing affordability. Interest rates, however, should begin to rise in 2023, fueled by inflation, a falling dollar, and a significant growth in the money supply.Consumer spending has been and will remain strong through 2021 and 2022 due to the influx of funding from the stimulus recently passed.Home remodeling has been enhanced by the increase in individuals working from home and the fact that the COVID-19 restrictions have made travel not possible, or at best, worrisome. Thus, the funds that would have been spent on travel and vacations are being invested in internal and external home remodeling. Home remodeling expenditures in 2021 are rising at +10 percent in 2021 and should continue on a less strong but significant upward trajectory through 2022.The unemployment rate should fall during the last part of 2021 as the extra unemployment payments in most states expired in mid-September. Unemployment is expected to fall to under 5 percent by year-end and under 4 percent by mid-year 2022.Business bankruptcies are down 43 percent in the first half of 2021 and now are closer to an average year’s filing.Real non-residential investment in structures, a measure of the inflation-adjusted investment in total new non-residential construction, continues to be hampered by uncertainty regarding future COVID-19 restrictions and back-to-work policies that need to be fully developed. It is forecast that real non-residential construction will fall 6.9 percent this year before rising 17 percent in 2022. The AIA Billings Index also has risen to 54.6 in the second quarter of 2021 from its low of 42.0 last year (an index greater than 50 indicates non-residential construction activity in the coming nine to 12 months will rise).Corporate pre-tax profits are rising in 2021 and forecast to be up 9 percent for the full year 2021 before declining 5 percent in 2022.
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Factors threatening the U.S. economic situation include:
Inflation from federal spending and debt could rise precipitously, causing the dollar to decline, prices to rise, personal income to fall, interest rates to soar, and the economy to slip into recession.Federal government policies are imposing open borders and increasing government regulations and restrictions that can impede economic growth.Energy prices are rising as the federal government has canceled oil and gas drilling leases on federal land turning the U.S. from energy independence to an energy importer.Consumer debt as a share of disposable personal income could rise again, which, along with Coronavirus, would slow consumer spending and economic growth. Unfettered U.S. immigration and mass migration could stymie wage gains.Continued undocumented immigrants and refugees entering the U.S. could threaten labor markets, expand welfare and social costs, raise government spending and debt, while thwarting wage growth. Without wage growth, it will be hard to grow consumer spending, the primary driver of the U.S. economy.Global trade disruptions could result from an escalation of the trade war with China or a new trade war with the European Union.Another wave of Coronavirus, or another variant, could emerge causing the reimposition of restrictions and wreaking havoc on recovering economies.The deficit resulting from all the stimulus spending by the U.S. government could threaten U.S. economic stability, the U.S. dollar, international trade, and interest rates.Valparaiso, Chile – September 2018: Aerial daylight view of Valparaiso Harbor from Paseo 21 de Mayo viewpoint at Cerro Artilleria
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This is a summary of the September 2021 Quarterly Market Monitor Report published by Market Insights LLC. NWFA members have exclusive access to the full report, which provides forecasts and analysis of economic, market, and industry conditions and trends affecting the North American flooring market. The report includes a historical and forecasted volume of dollar sales of total wood flooring (at mill sell price) per metro area and state. Separate reports are available for the United States and for Canada. The availability of the reports on a quarterly basis will provide NWFA members with current data that can help them develop business plans, prioritize inventory, and react to market conditions in a timely manner. NWFA members may download the full report by visiting nwfa.org.
Using two different methods to estimate the year-to-date calculated percent growth in dollar value consumption percent change for the first half of 2021 versus the same period last year for flooring types in the U.S., we see that the two methods are very much at odds. This is due to several reasons:
During the second quarter of 2020, the U.S. closed parts of its economy to impede the spread of COVID-19; therefore, the two periods are not truly comparable due to the unique nature of conditions in the second quarter of 2020.A significant portion of domestic shipments and imports during this year-to-date period were for inventory building to minimize product costs due to tariffs and coming price increases.
Santo Torcivia is president of Market Insights LLC in Reading, Pennsylvania. He can be reached at 610.927.2299 or [email protected]
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