Global Economic Review: March 2021



  • Operation Warp Speed and the continued efforts under the new administration allowed the US to break the 3 million doses per day in late March and even 4 million doses administered on two days in early April. 33% of the US population received at least one dose with the UK at almost 50%.  Europe shifted a littleNew Cases Per Day Per Million Population higher from last month to reach 13% as vaccine approval and production delays slowed rollout.  Fighting with the UK over vaccine exports to that country continued to damage the EU’s reputation as a reliable counterparty.  New EU cases per day began to move up notably in contrast to other regions as seen in the graph to the right.  In contrast, many US states are permitting all persons over the age of 18 to request vaccine appointments with the federal government doing the same by April 19th.  At this rate, it is easy to imagine that all US adults that want to receive the vaccine will be fully inoculated (both shots) by sometime in May or June.


  • While some emphasize the newer variants or re-infection rates, I noted this review cited by John Mauldin of the effectiveness of the Pfizer/Moderna vaccines, particularly the statement that they are 95% effective (my emphases):
    • If you receive the Pfizer or equally effective Moderna vaccine, do you have a 5% chance of catching the virus? No. That chance is far, far smaller:
      • Of those vaccinated in the Pfizer trial, only 8 of nearly 22,000 people, less than 1/10th of one percent (not 5%), were found to have contracted the virus during the study period. And of the 32,000 people who received either the Moderna or Pfizer vaccine, how many experienced severe symptoms? The grand total, noted David Leonhardt in a follow-up New York Times report: one.
      • The 5% number comes from the ratio between vax and placebo. The Pfizer/BioNTech clinical trial engaged nearly 44,000 people, half of whom received its vaccine, and half a placebo. The results? “Out of 170 cases of COVID-19, 162 were in the placebo group, and eight were in the vaccine group.” So, there was a 162 to 8 (95% to 5%) ratio by which those contracting the virus were unvaccinated (albeit with infected numbers likely rising in the post-study months), thus came the “95% effective” news we read about.
      • Of 74,000+ participants in one of the five vaccine trials, the number of vaccinated people who then died of COVID was zero. The number hospitalized with COVID was also zero.


With numbers like the above, particularly those people that have co-morbidities such as advanced age, liver, heart or lung diseases, diabetes and obesity inRetail and Recreation Mobility % Change From Baseline general should give extra consideration to vaccination.  Those that are younger or are healthy have more choices as befits their well-being.


  • The economic reaction to this good news started to show up in the numbers. The graph to the right showed the change in traffic around retail and out-of-the-house activities per Google’s mobility data – the US is the purple line ending around -10% versus a year ago.  Furthermore, the IMF just raised their 2021 global economic growth forecast to +6.0%. This is up 0.8% from their last estimate seen in October, 2020.  They also raised their 2022 estimate by 0.2% to +4.4%.


  • Our thoughts and prayers go out to those taken ill and we hope that they have access to proper care and recover fully.


Macro: US


  • Money-Money-Money was heard all over the US as $1.9 trillion in federal stimulus was signed in early March outlined in the broad categories seen to theWhat's In the $1.9 Trillion Stimulus Package right. Hidden away in this bill is $86 billion in a bailout for 1,400 failing pensions covering 10.7 million workers – the first time that the US government has ever made such a contribution.  Historically, the plan sponsor would have to work out a deal – recall that Detroit had to cut benefits, hand a loss to bondholders and increase contributions when it went bankrupt in 2013.  So new questions:  if you have a pension, should you expect bailouts in the future?  Most workers these days only have a 401(k) – where is their bailout?  Playing favorites like this may be politics as usual but falls short on fairness.


  • Despite the Big Outlays, additional borrowing has been relatively incremental so far. The US government already had more than $1.2 trillion in unspent funds in their account at the Federal Reserve from the previous stimulus packages.  Treasury Secretary Yellen did begin to aggressively spend that balance down as well as increase borrowing as the “normal” US budget deficit is running about $500 billion higher for fiscal 2021 (which started last October) versus the year prior.  In addition, the $1.9 trillion package will not all be spent in 2021 but partially continue into 2022.  The question remained open on additional stimulus spending – at the end of the month, Biden outlined a $2.25 trillion spending plan over eight years with about $2.1 trillion in offsetting tax increases over fifteen years.  If adopted by Congress as is, it will be the largest annual tax increase since 1968 (about $300 billion per year or about 1.4% of US GDP).  A further $1 trillion spending plan was hinted at after the $2.25 trillion is passed (Congress will pass something big given the Democrat majority and budget resolution process).  Finally, Biden laid out the “discretionary” spending portion of the budget for the next fiscal year, which is about 1/3rd of the total federal government budget – it looked similar to the size of the projected spend from last year’s budget ($1.5 trillion).  The remaining 2/3rd “mandatory” spending and debt interest payments ($3.5 trillion) will be pre-set per those programs, but was not mentioned, nor any projections or changes on the revenue side (which is normal at this time).  Finally, we noted that inflation does not seem likely from all this spending given the slack in the labor market and weakness in the commercial real estate markets, but interest rates would increase as the government needs to borrow more to finance these efforts.


  • Q1 GDP Growth Projections stayed strong at +6.2%, which seems doable given the US’ economic improvements associated with re-openings by locked-downImport Activity at the Ports of LA and Long Beach, YoY Change states. All this spending had an effect on employment, with companies adding the most jobs in seven months (+916,000 new jobs were added in March, beating estimates of +647,000).  Unemployment fell to 6.0% for March with the labor force participation rate increasing to 61.5%.  Generally other economic data was slightly positive.  Retail sales fell -3.0% in February but were revised upward for January to +7.6% and recent higher-frequency data was positive (e.g., retail foot traffic rose +58% during the last week of March from a year earlier, according to Bloomberg’s analysis of mobile-phone location data).  Stronger imports year-on-year (see right) confirmed this trend, which was helped by a strong US dollar versus other currencies.  February home sales were weaker by every measure as the number of available homes declined, mortgage rates increased and weather was particularly bad in the Midwest and Northeast.  The poor weather also hit industrial activity (e.g., durable goods orders fell -1.1% February month-on-month and overall industrial production fell -3.1% versus January) but that seemed temporary.


Macro: Asia


  • Bloomberg’s China GDP Growth target for 2021 was raised to +9.3% as production led the way. Exports soared +60.6% in the first two months of 2021 versus aChina Inflation % Change in CPI year earlier and a strong US GDP will be further supportive.  The government looked to expand the money supply in line with GDP growth, more conservatively than the US, Japan and Europe.  Part of the central bank caution stemmed from Chinese borrowers, which defaulted on more than $10 billion of local and offshore bonds in 2021, a year-to-date record.  China’s producer price inflation jumped in March to +4.4% year-on-year, partially reflecting rising commodity prices.  As the right graphic showed, consumers have not yet seen strong inflation impacts in the last few months after the tapering of pork prices.  Output is still strong such as seen in China’s crude steel industry which rose +12.9% in the first two months of 2021 compared with a year earlier, as steel mills increased production in expectation of more robust demand from the construction and manufacturing sectors.


  • Japanese Machine Tool Orders grew quickly in February at +19.1% versus January and retail sales likewise increased, by +3.1% month-on-month. The jobless rate held at 2.9% for the second month in a row, worse than a year ago due to lower hospitality employment from COVID.  Taiwan’s exporters overcame a traditional lull over the Lunar New Year holiday to continue their strong start to the year as overseas demand for their products registered a fourth straight month of double-digit growth.  Likewise, manufacturing output rose +3.8% in February from a year earlier.


Macro: Europe


  • Eurozone GDP Contracted more than previously estimated in the last three months of 2020 against the previous quarter, as household consumption plunged because of COVID-19 lockdowns. The European Union’s statistics office said it fell by -0.7% quarter-on-quarter, more than the initial -0.6% estimate, for a -4.9% year-on-year drop.  Troubles continued in 2021 as German industrial production fell -1.6% month-on-month (-6.4% year-on-year) in February.  Unemployment was steady at 8.3% that month.  In response, the ECB pledged to buy bonds more aggressively, though did not expand the total purchase amount.  Spain and Italy broke records in attracting bids for their 10-year bond offerings and Greece offered 30-year bonds for the first time since the financial crisis.  UK GDP in contrast improved in Q4 2020 by +1.3%m, though the annual drop was about twice as worse than the EU (-9.8%).  UK early indications in 2021 are smaller declines than expected, largely attributed to their aggressive COVID vaccination program.


David Burkart, CFA

Coloma Capital Futures®, LLC
Special contributor to aiSource