Robinson Analytics 2021 Economic Forecast June 2021 Edition

As you would expect there is continual change going on in the global economy since my last forecast on March 19, 2021. Different countries are recovering from the Pandemic at different rates around the world. My financial markets analysis is on the top 10 economies in the world. See the chart below.

The markets are currently forecasting that India's main street economy will do the best the next 6 (December 2021) to 9 months (March 2022), with Canada's main street economy performing second best and the United States third best (An improvement from sixth best in my March 2021 forecast), Brazil's main street economy performing fourth best, Italy's main street economy will perform fifth best, France is sixth best , Japan will perform seventh best and Germany will perform eight best, China will growth ninth best and the United Kingdom will grow tenth best.

The world economy is currently forecast to grow by 6.0% (increase from 5.5% in March 2021 forecast) in 2021. The world economy will need to grow by 3.4% to recover to where it was at the beginning of 2020. My current estimate is that we are on track for the world to recover from the 2020 recession by July 2021 (was August 2021 in my March 2021 forecast).

Robinson Analytics current United States economic growth forecast for 2021 is 6.4 % (up from 5.1% in my March 2021 forecast). The policies that have been implemented over the past four years are going to propel us into spectacular growth this year. My current estimate is that the U.S. will fully recover from the 2020 recession by July 2021 (up from January 2022 in my March 2021 forecast). So my forecast has improved markedly since March 2021. Below find a table that depicts growth rates for the economy by a number of firms by quarter on an annual basis.

When I take a look at what the Standard and Poor' 500 is forecasting for the rest of the year, or better known as the stock market, it is telling us that the economy will be growing over the next 6 to 9 months. So it corroborates the fundamental analysis that is depicted by the above firms. So I am not estimating a decline in the economy for the year at this time.

When I take a look at what the 10 Year United States Treasury bond market is currently forecasting, it is telling me that the economy will continue to expand. However, the yield has started to weaken the second quarter of 2021. That tells me that the bond market is not as confident about the economy in the future at this time. As you observe the equity markets in relation to the 10-year Treasury Bond Markets (black line), you see that the equity markets tend to move inversely to the bond markets, whether that is the S & P 500 (blue line), DJIA (purple line) or the Nasdaq (pink line). So it corroborates the fundamental analysis but is signaling caution about the future. (Bonus: Growth stocks should perform the best as long as the 10-year Treasury Bond Market is acting as it is.)

Even though manufacturing only accounts for ~11% of our economy, this sector of the economy is very important in that it is a leading economic indicator. In other words, manufacturing employment tells us whether the economy is going to contract or expand in the future. Manufacturing employment has not recovered to pre-pandemic levels as of May 2021. Employment has been growing since May of 2020. However, growth has not exceed the median of 35k jobs per month over the past two months, and has only exceeded the median job growth once in the past 6 months. Both January and April 2021 saw negative job growth. This leading indicator is corroborating the bond market and the fundamental analysis which forecast a slowing of growth in the economy. The trend-line on the chart below (red line) is indicating more downward pressure on job growth. (Note: Biden's tax plan as proposed will be a headwind to manufacturing in the U.S. See the note below.)

How will Biden's proposed tax plan affect the U.S. economy?

President Joe Biden’s proposed tax plan would raise taxes on high-income households and corporations. At the same time, he plans to increase tax credits for many low- and moderate-income families. Biden’s plan would repeal many of the tax cuts outlined in the Trump-sponsored Tax Cuts and Jobs Act (TCJA).

Biden would make the tax code more progressive, meaning more affluent households would pay taxes at a higher rate than low-income taxpayers.

By 2030, Biden’s tax increases would reduce after-tax income by 7.7% for the top 1% of taxpayers. The net effect of the biggest changes is to increase federal revenue by $3.3 trillion over 10 years. Like any tax increase, the plan would also reduce economic growth—in this case, by 1.62% over 10 years—which would lower the number of full-time jobs by 542,000.

In summary, Biden has been adamant that he won’t raise taxes on households making less than $400,000 a year.

However, costs will rise for all families as corporate taxes increase. To stay in business, companies must maintain a certain profit margin. So higher corporate taxes mean firms will either raise prices or cut costs, possibly by lowering wages or even laying off workers. Shareholders could also be hurt by lower corporate investment returns. In the long run, families who make less than $400,000 a year could be affected indirectly by Biden’s tax plan.