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A most unusual recovery: How the US rebound from COVID differs from rest of G7

The pace of recovery from the COVID shock differs across major advanced economies. In contrast to Europe and Japan, U.S. GDP exceeded its pre-COVID level in the third quarter of 2021 and may reach its pre-crisis trend in the fourth quarter. The pace of…

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2 years ago

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By Gian Maria Milesi-Ferretti

The pace of recovery from the COVID shock differs across major advanced economies. In contrast to Europe and Japan, U.S. GDP exceeded its pre-COVID level in the third quarter of 2021 and may reach its pre-crisis trend in the fourth quarter. The pace of recovery in Europe in the second and third quarters was still very substantial; as a result, the GDP gap vis-à-vis the U.S. narrowed. But the U.S. stands out in a couple of respects:

  • Domestic spending has recovered even faster than GDP because so much of the demand has been for imported goods; the trade deficit has been growing as import growth has been buoyant and exports have been contracting.
  • The U.S. fiscal stimulus was large both in absolute terms and relative to other countries.
  • The U.S. economy is more services-oriented than some other big economies, and domestic demand has shifted towards goods.

In the charts below, we survey consumption, investment, government spending, and trade for major advanced economies, comparing the most recent data to the fourth quarter of 2019, the last full quarter before the onset of the pandemic.

Europe’s GDP growth spurt has reduced the gap with the U.S.

Economic activity around the world plunged in the first few months of 2020, as the pandemic spread around the world and severe lockdowns were put in place, first in China and then across most advanced economies. The depth of the contraction during the first half of 2020 differed across countries: the UK was hit particularly severely, as were some euro area countries, while the contraction was more moderate in Japan and the U.S. With the re-opening in the third quarter of 2020, GDP levels among the G7 economies grew closer, but during the last quarter of 2020 and the first quarter of 2021, European countries fell further behind the U.S. as lockdowns were imposed to contain the pandemic and vaccine availability lagged relative to the U.S. During the second and third quarters of 2021, however, European economies staged a strong recovery, as a rapid pace of vaccinations was associated with reduced restrictions on mobility and activity. U.S. growth has remained strong, while growth in Japan has stalled, as COVID cases increased.[1] By the end of the third quarter of 2021, the U.S. had surpassed the pre-COVID level of GDP (fourth quarter of 2019). Among larger euro area economies, France has virtually recovered that level of activity, and GDP remains substantially below its pre-COVID level only in Spain, severely affected by the pandemic and the ensuing tourism collapse.

In contrast, most smaller European advanced economies—such as Austria, Belgium, Finland, and the Netherlands in the euro area, as well as Denmark, Norway, Sweden, and Switzerland—have already reached their pre-COVID GDP level. These countries generally had lower exposure to the most affected service sectors. Ditto for smaller advanced economies in Asia. Taiwan—a manufacturing powerhouse—has done particularly well, with GDP in the third quarter exceeding its end-2019 level by 7 percent.

U.S. GDP is closer to pre-COVID trend than other advanced economies

A comparison of GDP levels understates the impact of the crisis because, if not for the pandemic, economies would probably have grown over 2020-21. We therefore compare GDP at the end of the third quarter of 2021 with its pre-crisis trend. With this metric, economic activity in all G7 economies (as well as Spain) has not yet reached its pre-COVID trend. On current projections, the U.S. is expected to reach its pre-COVID trend in the fourth quarter of 2021, with most other countries doing so in 2022. However, a fourth wave of infections and the emergence of the new omicron variant have increased uncertainty about the speed of recovery, especially during the winter months in the Northern Hemisphere.

fig2_shortfall1

U.S. Consumption Rising Faster Than GDP

Compared to other advanced economies, the recovery in the U.S. stands out because domestic consumer spending has risen so much.[2] As the pandemic curtailed consumption of contact-intensive services around the world, the U.S. consumption of services, despite a very strong rebound, remained in the third quarter of 2021 some 1 ½ percent below its pre-pandemic level while consumption of goods was up by 15 percent. Consumption of durable goods rose more than 20 percent, despite a sharp decline in car purchases in the third quarter driven by supply constraints. The U.S. also faced labor shortages, as labor force participation remained substantially below its pre-pandemic levels despite strong labor demand. In contrast, labor force participation remained broadly stable in other major advanced economies, where ties between firms and workers were generally maintained through furlough schemes. These differences, together with those in the strength of domestic demand, have contributed to stronger inflationary pressures in the U.S. than in other major advanced economies.

fig3_private_consumption1

Government consumption up across the board

A common element across all advanced economies has been a rise in government consumption (which includes government wages and salaries and government purchases of goods and services). Note that the increase in the U.S. is slightly more modest because this category does not include government transfers, which were particularly substantial in the U.S. Also, health spending is mostly public in the other countries in the table.

fig4_govt_consumption1

Investment has rebounded, but the capital stock is down

Data on gross fixed capital formation shows a pattern broadly similar to private consumption, with a much stronger contraction in European countries than in the U.S. and Japan. Despite the subsequent recovery, the capital stock remains below its pre-crisis trend, especially in Europe, as new investment has not compensated for the sizable shortfall during the first half of 2020. Lower investment in the transportation sector, affected by the semiconductor shortage and the decline in air travel, is an important reason for the shortfall.

fig5_fixed_formation1

Trade growth: strong demand for goods, supply constraints

While trade in some services—particularly tourism—came to a virtual standstill in 2020 and is only slowly recovering, trade in goods rebounded sharply after an initial decline, as demand for goods has been very strong. Three key factors have shaped the dynamics of exports and imports across countries.

The first is the strength of domestic demand—in the case of private consumption, driven primarily by household disposable income. The hefty size of fiscal stimulus in the United States—in absolute terms and relative to other countries—has played a key role in sustaining U.S. consumption and imports. In turn, the strength of U.S. demand has helped export growth in U.S. trading partners, while the more subdued pace of domestic demand in U.S. trading partners is one factor holding back U.S. exports.

The second factor is the composition of economic activity pre-COVID—countries where manufacturing is a more important share of GDP have generally benefited from an increase in foreign demand, given the nature of the shock which has shifted spending from services to goods, while countries relying to an important extent on exports of services (think of tourism exports for countries such as Greece, Portugal, and Spain) have been hurt.

The third factor is supply constraints, which have affected goods’ production across the world. These have been triggered by a variety of factors, including reduced production and orders during the initial downturn, subsequent COVID-related shutdowns, and the unexpectedly rapid rebound in demand. For instance, constraints in the availability of semiconductors have put a dent in global production of a variety of goods, such as autos, and affected exports in advanced economies, especially in the third quarter. Globally, firms facing supply bottlenecks accommodated strong demand by running down inventories, which are particularly low, and inflationary pressures increased across the globe, with soaring commodity prices and goods prices rising notably after a long period of stability.

fig6_imports1

fig7_exports1

Overall, looking across all advanced economies, exports have been weaker than imports.[3] In contrast, exports have grown faster than imports in China and other economies in emerging Asia. Chinese exports of manufactured goods have benefited greatly from shifts in global demand, while Chinese imports of services, which were particularly substantial for travel (both tourism and education expenditures) plummeted with the closure of borders.

U.S. consumption recovery boosts imports of consumer goods

The composition of U.S. trade provides an additional explanation for the different dynamics of exports and imports, over and above the difference in the growth rate of domestic demand in the U.S. relative to its trading partners. Specifically, the U.S. is a net importer of goods and a net exporter of services, and consumer products account for a larger share of imports of goods relative to exports.

fig8_shares2

The strong recovery in spending on consumer goods has therefore boosted U.S. imports and widened the U.S. trade deficit. Furthermore, the more rapid recovery in capital spending in the U.S. compared to its trading partners has also implied faster growth in imports of industrial supplies and capital goods relative to exports. The trade data also highlights the importance of supply bottlenecks and constraints: these are particularly visible in the data for trade in cars and car parts in the third quarter of 2021.

fig9_growth2

Recovery prospects

Growth prospects for the fourth quarter and 2022 looked pretty strong for advanced economies until a few weeks ago, but a new wave of infections hitting European countries, especially Germany, and the discovery of the new omicron variant have increased uncertainty over short-term prospects. This notwithstanding, growth prospects for advanced economies have remained much more favorable than those for many emerging and developing economies, where vaccination rates are much lower and economic activity remains substantially below the pre-crisis trend. An important question for advanced economies is going to be the speed with which supply capacity will rise, both in the goods sector and in services as re-opening occurs. This will be key to allow the recovery to continue without the need for a more drastic policy tightening to reduce inflationary pressures.

[1] For the euro area we also show GDP and its components, excluding Ireland. This is because Irish national accounts are heavily affected by financial operations of multinational corporations, particularly in regard to transfers of intellectual property (IP) to Irish affiliates of U.S. companies. These transfers (which were very large in Q4 2019 and Q1 2020, for instance) boost investment and imports (they are recorded as imports of IP matched by new investment in IP), and to a somewhat lesser extent, GDP.

[2] Indeed, total demand in the United States (a measure of domestic spending) was 3.3 percent above its level in the last quarter of 2019, while the corresponding figure for U.S. GDP was 1.4 percent.

[3] The weakness of UK imports and especially exports in the aftermath of Brexit is particularly notable.

The Brookings Institution is financed through the support of a diverse array of foundations, corporations, governments, individuals, as well as an endowment. A list of donors can be found in our annual reports published online here. The findings, interpretations, and conclusions in this report are solely those of its author(s) and are not influenced by any donation.

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Home buyers must now navigate higher mortgage rates and prices

Rates under 4% came and went during the Covid pandemic, but home prices soared. Here’s what buyers and sellers face as the housing season ramps up.

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2 hours ago

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March 17, 2024

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Springtime is spreading across the country. You can see it as daffodil, camellia, tulip and other blossoms start to emerge. 

You can also see it in the increasing number of for sale signs popping up in front of homes, along with the painting, gardening and general sprucing up as buyers get ready to sell. 

Which leads to two questions: 

  • How is the real estate market this spring? 
  • Where are mortgage rates? 

What buyers and sellers face

The housing market is bedeviled with supply shortages, high prices and slow sales.

Mortgage rates are still high and may limit what a buyer can offer and a seller can expect.  

Related: Analyst warns that a TikTok ban could lead to major trouble for Apple, Big Tech

And there's a factor not expected that may affect the sales process. Fixed commission rates on home sales are going away in July.

Reports this week and in a week will make the situation clearer for buyers and sellers. 

The reports are:

  • Housing starts from the U.S. Commerce Department due Tuesday. The consensus estimate is for a seasonally adjusted rate of about 1.4 million homes. These would include apartments, both rentals and condominiums. 
  • Existing home sales, due Thursday from the National Association of Realtors. The consensus estimate is for a seasonally adjusted sales rate of about 4 million homes. In 2023, some 4.1 million homes were sold, the worst sales rate since 1995. 
  • New-home sales and prices, due Monday from the Commerce Department. Analysts are expecting a sales rate of 661,000 homes (including condos), up 1.5% from a year ago.

Here is what buyers and sellers need to know about the situation. 

Mortgage rates will stay above 5% 

That's what most analysts believe. Right now, the rate on a 30-year mortgage is between 6.7% and 7%. 

Rates peaked at 8% in October after the Federal Reserve signaled it was done raising interest rates.

The Freddie Mac Primary Mortgage Market Survey of March 14 was at 6.74%. 

Freddie Mac buys mortgages from lenders and sells securities to investors. The effect is to replenish lenders' cash levels to make more loans. 

A hotter-than-expected Producer Price Index released that day has pushed quotes to 7% or higher, according to data from Mortgage News Daily, which tracks mortgage markets.

Home buyers must navigate higher mortgage rates and prices this spring.

TheStreet

On a median-priced home (price: $380,000) and a 20% down payment, that means a principal and interest rate payment of $2,022. The payment  does not include taxes and insurance.

Last fall when the 30-year rate hit 8%, the payment would have been $2,230. 

In 2021, the average rate was 2.96%, which translated into a payment of $1,275. 

Short of a depression, that's a rate that won't happen in most of our lifetimes. 

Most economists believe current rates will fall to around 6.3% by the end of the year, maybe lower, depending on how many times the Federal Reserve cuts rates this year. 

If 6%, the payment on our median-priced home is $1,823.

But under 5%, absent a nasty recession, fuhgettaboutit.

Supply will be tight, keeping prices up

Two factors are affecting the supply of homes for sale in just about every market.

First: Homeowners who had been able to land a mortgage at 2.96% are very reluctant to sell because they would then have to find a home they could afford with, probably, a higher-cost mortgage.

More economic news:

Second, the combination of high prices and high mortgage rates are freezing out thousands of potential buyers, especially those looking for homes in lower price ranges.

Indeed, The Wall Street Journal noted that online brokerage Redfin said only about 20% of homes for sale in February were affordable for the typical household.

And here mortgage rates can play one last nasty trick. If rates fall, that means a buyer can afford to pay more. Sellers and their real-estate agents know this too, and may ask for a higher price. 

Covid's last laugh: An inflation surge

Mortgage rates jumped to 8% or higher because since 2022 the Federal Reserve has been fighting to knock inflation down to 2% a year. Raising interest rates was the ammunition to battle rising prices.

In June 2022, the consumer price index was 9.1% higher than a year earlier. 

The causes of the worst inflation since the 1970s were: 

  • Covid-19 pandemic, which caused the global economy to shut down in 2020. When Covid ebbed and people got back to living their lives, getting global supply chains back to normal operation proved difficult. 
  • Oil prices jumped to record levels because of the recovery from the pandemic recovery and Russia's invasion of Ukraine.

What the changes in commissions means

The long-standing practice of paying real-estate agents will be retired this summer, after the National Association of Realtors settled a long and bitter legal fight.

No longer will the seller necessarily pay 6% of the sale price to split between buyer and seller agents.

Both sellers and buyers will have to negotiate separately the services agents have charged for 100 years or more. These include pre-screening properties, writing sales contracts, and the like. The change will continue a trend of adding costs and complications to the process of buying or selling a home.

Already, interest rates are a complication. In addition, homeowners insurance has become very pricey, especially in communities vulnerable to hurricanes, tornadoes, and forest fires. Florida homeowners have seen premiums jump more than 102% in the last three years. A policy now costs three times more than the national average.

Related: Veteran fund manager picks favorite stocks for 2024

 

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Mistakes Were Made

Mistakes Were Made

Authored by C.J.Hopkins via The Consent Factory,

Make fun of the Germans all you want, and I’ve certainly done that…

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22 hours ago

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March 17, 2024

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Mistakes Were Made

Authored by C.J.Hopkins via The Consent Factory,

Make fun of the Germans all you want, and I’ve certainly done that a bit during these past few years, but, if there’s one thing they’re exceptionally good at, it’s taking responsibility for their mistakes. Seriously, when it comes to acknowledging one’s mistakes, and not rationalizing, or minimizing, or attempting to deny them, and any discomfort they may have allegedly caused, no one does it quite like the Germans.

Take this Covid mess, for example. Just last week, the German authorities confessed that they made a few minor mistakes during their management of the “Covid pandemic.” According to Karl Lauterbach, the Minister of Health, “we were sometimes too strict with the children and probably started easing the restrictions a little too late.” Horst Seehofer, the former Interior Minister, admitted that he would no longer agree to some of the Covid restrictions today, for example, nationwide nighttime curfews. “One must be very careful with calls for compulsory vaccination,” he added. Helge Braun, Head of the Chancellery and Minister for Special Affairs under Merkel, agreed that there had been “misjudgments,” for example, “overestimating the effectiveness of the vaccines.”

This display of the German authorities’ unwavering commitment to transparency and honesty, and the principle of personal honor that guides the German authorities in all their affairs, and that is deeply ingrained in the German character, was published in a piece called “The Divisive Virus” in Der Spiegel, and immediately widely disseminated by the rest of the German state and corporate media in a totally organic manner which did not in any way resemble one enormous Goebbelsian keyboard instrument pumping out official propaganda in perfect synchronization, or anything creepy and fascistic like that.

Germany, after all, is “an extremely democratic state,” with freedom of speech and the press and all that, not some kind of totalitarian country where the masses are inundated with official propaganda and critics of the government are dragged into criminal court and prosecuted on trumped-up “hate crime” charges.

OK, sure, in a non-democratic totalitarian system, such public “admissions of mistakes” — and the synchronized dissemination thereof by the media — would just be a part of the process of whitewashing the authorities’ fascistic behavior during some particularly totalitarian phase of transforming society into whatever totalitarian dystopia they were trying to transform it into (for example, a three-year-long “state of emergency,” which they declared to keep the masses terrorized and cooperative while they stripped them of their democratic rights, i.e., the ones they hadn’t already stripped them of, and conditioned them to mindlessly follow orders, and robotically repeat nonsensical official slogans, and vent their impotent hatred and fear at the new “Untermenschen” or “counter-revolutionaries”), but that is obviously not the case here.

No, this is definitely not the German authorities staging a public “accountability” spectacle in order to memory-hole what happened during 2020-2023 and enshrine the official narrative in history. There’s going to be a formal “Inquiry Commission” — conducted by the same German authorities that managed the “crisis” — which will get to the bottom of all the regrettable but completely understandable “mistakes” that were made in the heat of the heroic battle against The Divisive Virus!

OK, calm down, all you “conspiracy theorists,” “Covid deniers,” and “anti-vaxxers.” This isn’t going to be like the Nuremberg Trials. No one is going to get taken out and hanged. It’s about identifying and acknowledging mistakes, and learning from them, so that the authorities can manage everything better during the next “pandemic,” or “climate emergency,” or “terrorist attack,” or “insurrection,” or whatever.

For example, the Inquiry Commission will want to look into how the government accidentally declared a Nationwide State of Pandemic Emergency and revised the Infection Protection Act, suspending the German constitution and granting the government the power to rule by decree, on account of a respiratory virus that clearly posed no threat to society at large, and then unleashed police goon squads on the thousands of people who gathered outside the Reichstag to protest the revocation of their constitutional rights.

Once they do, I’m sure they’ll find that that “mistake” bears absolutely no resemblance to the Enabling Act of 1933, which suspended the German constitution and granted the government the power to rule by decree, after the Nazis declared a nationwide “state of emergency.”

Another thing the Commission will probably want to look into is how the German authorities accidentally banned any further demonstrations against their arbitrary decrees, and ordered the police to brutalize anyone participating in such “illegal demonstrations.”

And, while the Commission is inquiring into the possibly slightly inappropriate behavior of their law enforcement officials, they might want to also take a look at the behavior of their unofficial goon squads, like Antifa, which they accidentally encouraged to attack the “anti-vaxxers,” the “Covid deniers,” and anyone brandishing a copy of the German constitution.

Come to think of it, the Inquiry Commission might also want to look into how the German authorities, and the overwhelming majority of the state and corporate media, accidentally systematically fomented mass hatred of anyone who dared to question the government’s arbitrary and nonsensical decrees or who refused to submit to “vaccination,” and publicly demonized us as “Corona deniers,” “conspiracy theorists,” “anti-vaxxers,” “far-right anti-Semites,” etc., to the point where mainstream German celebrities like Sarah Bosetti were literally describing us as the inessential “appendix” in the body of the nation, quoting an infamous Nazi almost verbatim.

And then there’s the whole “vaccination” business. The Commission will certainly want to inquire into that. They will probably want to start their inquiry with Karl Lauterbach, and determine exactly how he accidentally lied to the public, over and over, and over again …

And whipped people up into a mass hysteria over “KILLER VARIANTS” …

And “LONG COVID BRAIN ATTACKS” …

And how “THE UNVACCINATED ARE HOLDING THE WHOLE COUNTRY HOSTAGE, SO WE NEED TO FORCIBLY VACCINATE EVERYONE!”

And so on. I could go on with this all day, but it will be much easier to just refer you, and the Commission, to this documentary film by Aya Velázquez. Non-German readers may want to skip to the second half, unless they’re interested in the German “Corona Expert Council” …

Look, the point is, everybody makes “mistakes,” especially during a “state of emergency,” or a war, or some other type of global “crisis.” At least we can always count on the Germans to step up and take responsibility for theirs, and not claim that they didn’t know what was happening, or that they were “just following orders,” or that “the science changed.”

Plus, all this Covid stuff is ancient history, and, as Olaf, an editor at Der Spiegel, reminds us, it’s time to put the “The Divisive Pandemic” behind us …

… and click heels, and heil the New Normal Democracy!

Tyler Durden Sat, 03/16/2024 - 23:20

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“Extreme Events”: US Cancer Deaths Spiked In 2021 And 2022 In “Large Excess Over Trend”

"Extreme Events": US Cancer Deaths Spiked In 2021 And 2022 In "Large Excess Over Trend"

Cancer deaths in the United States spiked in 2021…

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1 day ago

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March 16, 2024

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"Extreme Events": US Cancer Deaths Spiked In 2021 And 2022 In "Large Excess Over Trend"

Cancer deaths in the United States spiked in 2021 and 2022 among 15-44 year-olds "in large excess over trend," marking jumps of 5.6% and 7.9% respectively vs. a rise of 1.7% in 2020, according to a new preprint study from deep-dive research firm, Phinance Technologies.

Algeria, Carlos et. al "US -Death Trends for Neoplasms ICD codes: C00-D48, Ages 15-44", ResearchGate, March. 2024 P. 7

Extreme Events

The report, which relies on data from the CDC, paints a troubling picture.

"We show a rise in excess mortality from neoplasms reported as underlying cause of death, which started in 2020 (1.7%) and accelerated substantially in 2021 (5.6%) and 2022 (7.9%). The increase in excess mortality in both 2021 (Z-score of 11.8) and 2022 (Z-score of 16.5) are highly statistically significant (extreme events)," according to the authors.

That said, co-author, David Wiseman, PhD (who has 86 publications to his name), leaves the cause an open question - suggesting it could either be a "novel phenomenon," Covid-19, or the Covid-19 vaccine.

"The results indicate that from 2021 a novel phenomenon leading to increased neoplasm deaths appears to be present in individuals aged 15 to 44 in the US," reads the report.

The authors suggest that the cause may be the result of "an unexpected rise in the incidence of rapidly growing fatal cancers," and/or "a reduction in survival in existing cancer cases."

They also address the possibility that "access to utilization of cancer screening and treatment" may be a factor - the notion that pandemic-era lockdowns resulted in fewer visits to the doctor. Also noted is that "Cancers tend to be slowly-developing diseases with remarkably stable death rates and only small variations over time," which makes "any temporal association between a possible explanatory factor (such as COVID-19, the novel COVID-19 vaccines, or other factor(s)) difficult to establish."

That said, a ZeroHedge review of the CDC data reveals that it does not provide information on duration of illness prior to death - so while it's not mentioned in the preprint, it can't rule out so-called 'turbo cancers' - reportedly rapidly developing cancers, the existence of which has been largely anecdotal (and widely refuted by the usual suspects).

While the Phinance report is extremely careful not to draw conclusions, researcher "Ethical Skeptic" kicked the barn door open in a Thursday post on X - showing a strong correlation between "cancer incidence & mortality" coinciding with the rollout of the Covid mRNA vaccine.

Phinance principal Ed Dowd commented on the post, noting that "Cancer is suddenly an accelerating growth industry!"

Continued:

Bottom line - hard data is showing alarming trends, which the CDC and other agencies have a requirement to explore and answer truthfully - and people are asking #WhereIsTheCDC.

We aren't holding our breath.

Wiseman, meanwhile, points out that Pfizer and several other companies are making "significant investments in cancer drugs, post COVID."

Phinance

We've featured several of Phinance's self-funded deep dives into pandemic data that nobody else is doing. If you'd like to support them, click here.

 

Tyler Durden Sat, 03/16/2024 - 16:55

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