Northwood McNair Center Releases Economic Forecast for 2021


Each year, Northwood University’s McNair Center for the Advancement of Free Enterprise and Entrepreneurship produces its annual forecast for the US economy. Here is the center’s forecast for 2021 against the six key economic variables that account for much of the size, scope and growth of the U.S. economy.

1. GDP

The US economy, like economies around the world, has experienced a monumental roller coaster ride when it comes to gross national product developments in 2020.

The US economy started the first quarter with one of the worst quarterly declines in modern economic history with a 5% drop in real GDP in the first quarter due to what we now call the COVID-19 recession. The first quarter was followed by the worst quarter in US history, where real GDP fell another 31.7% in the second quarter. In an astonishing recovery that no economist predicted in March 2020, the US economy rebounded and grew 33.4%. A clear testament to the resilience and underlying strength of the US economy at the time. Real GDP ended the year with initial growth estimated at 4% for the fourth quarter and preliminary negative annual real GDP of 4%.

It’s a year we hope to forget, but a much better result than the double-digit annual declines that many “experts” demanded in late March and early April. We believe real GDP for 2021 will end the year at an estimated positive growth rate of 4.2% on an annualized basis. Much of the growth hinges on Trump-era deregulation and tax cuts.

If the Biden administration and Democrat-controlled Congress continue their early retirement to increase the size and reach of government through additional regulatory burdens and tax increases, that forecast could prove to be overly optimistic. We believe that US real GDP will reach pre-pandemic levels by the summer of 2021. However, we also expect that a full recovery in employment will be delayed until mid-2022 due to the slow recovery in the hotel sector. This recovery could be further compromised by a federal minimum wage of $ 15.

2. The national debt

Currently, the national debt of the United States stands at $ 27.8 trillion. With an annual debt per taxpayer of $ 222,190 and the average annual debt per American man, woman and child amounting to $ 84,180 per person.

The current federal budget projects an integrated federal budget deficit of $ 3.21 trillion. However, the current federal budget deficit is already $ 4.6 trillion and growing (it’s important to note that there are almost eight months left in the current fiscal year). It is also important to note that the US federal budget deficit from 1776 to 1981 totaled “only” $ 998 billion.

In addition, we are very likely to have a single budget deficit for fiscal year 2021 where the federal budget deficit will be greater than $ 5,000 billion. Currently, the total US national debt is 130.82% of US GDP. We find this quite disturbing and unfortunately believe that the national debt of the United States will reach at least 135% of the American GDP by the end of 2021. It is untenable and must be settled in five years or the very fiscal survival of them. United States are in danger.

3. The American inflation rate

The US inflation rate ended 2018 with an annualized inflation rate of 2.44% with slightly lower inflation and ending 2019 with an annualized rate of 2.18% based on an average of estimates.

The COVID-19 recession of 2020 significantly reduced price growth, with preliminary estimates of inflation being around 0.63% for the year. There are already signs that inflation is on the rise based on the yield on 10-year US Treasury bonds, which fell from just over 0.4 in late March / early April 2020 to 1.17 at the beginning of February. We believe that: a) increasing economic activity, b) upward pressure on interest rates from growing national debt, and c) rising oil and natural gas prices in Due to a growing economy and government policies that restrict oil supplies, such as the closure of the Keystone XL pipeline and the limitation of hydraulic fracturing leases on federal lands will further increase overall prices. Considering the above, our forecast for inflation in 2021 is 2.31%.

4. Auto sales in the United States

We are cautiously optimistic about the US auto economy in 2021. Based on our expected economic recovery, pent-up demand, and a recovering manufacturing sector, we estimate sales of automobiles, light trucks and SUVs will be between 15.7 and 16.1 million new vehicles. sold. If we are correct, sales will increase by 11.03% over 2020 sales of around 14.5 million vehicles sold. The expected rebound will be an improvement over last year’s sluggish sales volume which was down 14.8% from 2019 sales.

5. Dow Jones Industrial Average

The Dow Jones Industrial Average closed 2020 at 30,606.48, up 7.25% for the year, while the S&P 500 rose 16.26% annually and the NASDAQ rose 43.64% in 2020.

We believe the DJIA will end the year up around 10% at 33,670. Unfortunately, beyond the actual growth of the DJIA high-tech sector, most of the additional growth will be a bit of a mirage created. through government grants and stimulus programs.

We believe the stock market will face its judgment day by the end of the year. It will show reduced growth in the form of government subsidies from Washington. DC is starting to slow down, and the foundations of the US economy are starting to show cracks in its foundations.

6. National average interest rate for residential mortgages

The national average for a 30-year fixed mortgage interest rate ended 2020 at an annualized rate of 3.11%. However, with our forecast of a strong economic recovery, our call for increased inflation and upward pressure for borrowing in capital markets due to massive growth in US national debt in 2020 and 2021, we Let’s see the 30-year fixed rate slightly exceed 4% by the end of 2021. We know that this prediction goes against the stated goals of the Federal Reserve Bank of the United States, but stick to it.

As you can see, we are concerned about the growing size, reach and influence of the federal government and its negative impact on the growth of the US private sector. We were concerned about government growth during President Trump’s administration, while our hope that President Biden’s administration could bring more fiscal reason to Washington quickly fades early in his administration.

Dr Timothy G. Nash is director of the McNair Center for the Advancement of Free Enterprise and Entrepreneurship at Northwood University and Kristin Tokarev is a student researcher at the McNair Center.


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