July 6, 2021
Economic Outlook: Week of July 5, 2021
Every week, Flexport Chief Economist Phil Levy gathers the most relevant news for the global trade community.
Track major world economies, see what the latest indices reveal, and keep up with the facts and figures that could impact your business.
Here’s the economic news you need for the week of July 5, 2021.
Let’s start with a chart. This week, it's the Congressional Budget Office July 2021 Update.
The Congressional Budget Office, as part of its role in assessing the impact of budgets and bills, develops 10 year forecasts. The chart above shows 2020 actual figures and then newly forecast values for the following five years (with an average value given for 2024 and 2025).
For real GDP (economic growth less inflation), the comparison is between the fourth quarter of the year and the fourth quarter of the year before. The same is true for the consumer price index (CPI). The unemployment rate is the level for the fourth quarter.
The forecast is a rosy one for the US economy, at least for the next year or two. After a recovery spurt in 2021 with a burst of transitory inflation, the economy settles into a more sustainable rate of growth in 2022 with inflation subsiding to 2.3 percent and the unemployment rate falling to the same range it was before the Covid pandemic.
The out-year forecasts are less good, with real GDP growth slowing to 1.1-1.2 percent (CBO sees 2.0% as the growth rate of real potential GDP), unemployment climbing, and inflation remaining higher than it was pre-pandemic. CBO predicts those modest trends will continue across 2026-2031 (not shown), with averages of 1.6% real GDP growth, 2.4% inflation, 4.5% unemployment.
The economic forecast is stronger than CBO’s earlier predictions, which it attributes to the effect of fiscal stimulus, success against the pandemic, and stronger consumer spending out of savings.
A strong US jobs report showed 850K new jobs in June, the biggest increase since August 2020 and significantly above expectations.
The job gains were heavily in private service-providing industries, with leisure and hospitality leading. The employment-population ratio—calculated from a different survey—stayed constant at 58.0%, 3.1 percentage points below its February 2020 level. The unemployment rate was 5.9%, up slightly from May.
An oil negotiation impasse blocked talks to increase production among the OPEC+ group. Following the breakdown, Brent crude rose to $77.09 per barrel, its highest since 2018.
Broad US trade measures were up in May. Exports were up 0.6%, and imports up 1.3%. Comparing cumulative goods imports for January-May, they were up 22.2% over 2020 (pandemic affected) but just 7.7% over 2019. Goods exports for that period were up 19.7% over 2020 and 0.7% over 2019.
US trade promotion authority expired on July 1. The absence of negotiating authority makes the adoption of any significant new free trade agreement (e.g. with the UK or Kenya, both under negotiation) unlikely in the near future.