Global Economic Review: May 2021



Daily Averages as % Peak

  • Operation Warp Speed and the continued efforts under the new administration pushed US vaccine distribution to over 50% of the total population given at least one dose with the EU at 40% and the UK at 60%. The Reuters graph to the right shows the current rates of infections and deaths versus the peak, with the former running at 6% of peak and the latter at 13%.  A practical impact was seen in air travel levels which are dramatically better at 1.9 million people flying at of the end of May per the TSA versus 0.3 million a year ago.  However, with the 2019 level at 2.5 million, there is still room for improvement.


  • With case / hospitalization / death numbers moving lower, the focus is increasingly on emerging market countries. While behind, many of those countries made progress, such as with India reversing their case count (infections are at 37% of peak) and Mexico, helped by its proximity to the US, which achieved 9.5 deaths per million population for the week ending May 23, the slowest rate of fatalities in more than a year and down from more than 80 earlier in 2021 (17% of peak infection).


  • 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


  • Building on a Strong Q1 GDP Growth (+6.4% annualized), the Atlanta Fed projected Q2 to accelerate to +10.3% annualized due to further re-openings (fully/partially) by locked-down states, particularly the more populous ones. May’s unemployment rate fell to 5.8% versus April’s 6.1% with non-farm payrolls rising 559,000 with positive revisions in the previous two months.  Hourly month-on-month earnings increased +0.5% versus +0.2% expected.  Applications for unemployment insurance continued to fall as some states started to limit benefits and businesses reopened.  Not perfect but very good results overall.  April factory good orders fell -0.6% (worse than expected) versus March but non-defense, non-aircraft (AKA core orders) were up more than forecast at +2.2%.  Industrial production increased +0.7% in April, continuing the March trend.  Home sales (whether measured by pending home sales or previously-owned homes) fell in April as high prices and limited supply restrained sales for the third month in a row.  As an illustration, there were 1.16 million homes for sale at the end of April, down 20.5% from a year earlier.  It would take 2.4 months at the current pace to sell all the homes on the market.  A year ago, it was four months.  Reportedly, realtors see anything below five months of supply as a sign of a tight market.


  • Inflation Made Headlines But Fed Not Worried as many of the common ways they allegedly view it appear to be at levels seen often during the last two-and-a-half decades (see graph right). On the other hand, the consumer price index (CPI) rose in April by the most since 2009 (+0.8% after a +0.6% increase in March) with the less volatile core CPI up more atUS Underlying Inflation - What the Fed Sees +0.9%.  While the Fed argues that this is transitory due to deflationary pressures last year at the beginning of the pandemic-induced shutdowns, certainly higher food and energy prices caught the attention of the public.  Recent statements about letting the economy “run hot” before talking about considering tapering QE (let alone actually raising rates) directed markets to expect that the Fed will wait a few quarters if not until next year before making a meaningful move.  The Fed did close a corporate bond purchase program enacted last year but its assets were di minimis versus the rest of the balance sheet.  Watching the velocity of money (how quickly money flows through the financial system) may give a clue about when to worry.   Looking at the graph to the left, one can see it is at the lowest level on record.  While the amount of money has grown Velocity of Money (1900-2021)dramatically due to the trillions deficit spending, there has not been a consummate increase in GDP (at least as seen historically).  Households and companies have not taken the government spending and gone (yet) to borrow to meet their wants and obligations.  Government deficit spending delayed the need for households and businesses to stretch their budgets.  How long can this continue?  That is the multi-trillion question.


  • Biden Budget Proposal to Continue the Spending Spree with the expected deficit to exceed $1.8 trillion, assuming his two additional spending plans pass the Senate. However, even if they do not, next year’s deficit will be different only by about $100 billion – a rounding error these days.   While Democrats can force some of the additional spending through, Senate rules limit their ability.  June is too soon to see clarity as there are a lot of moving parts.


Macro: Asia


  • Chinese April Industrial Output Grew “Only” +9.8% year-on-year, slowing from the +14.1% move in March. Retail sales increased +17.7% year-on-year in April, missing a +24.9%Delinquent Debtors forecast.  Meanwhile, Chinese corporations are defaulting on local bonds at the fastest pace on record – while 100 billion Yuan can be absorbed, the pace is quite strong versus previous years (see graph right – yellow line for 2021).  In addition, China’s factory-gate prices surged more than expected in April (+8% from a year earlier), fueled by rapid gains in commodity prices, which could further translate into global inflation.  China’s exports moved higher in May by almost 28%, although at a slower pace than the previous month, fueled by strong global demand economic re-openings.  Imports soared by 51%, boosted by rising commodity prices, the fastest pace since March 2010.  We shall see how “transitory” (to use the Federal Reserve’s new favorite word) this strength will be.


  • Japanese Exports Also Ramped, having grown the most in April since 2010 at a year-on-year rate of 38%. Areas of note included US-bound shipments of cars and car parts, and Chinese demand for chip-making equipment.  This strength flowed into massive machine tool orders (again the highest since 2010).  Given the deeper than expected GDP contraction in Q1 by -5.1% (versus -4.5% forecast), hopefully the precursor data cited above will turn this around – and it would be hard to spur global inflation with more numbers like this.


Macro: Europe


  • Eurozone GDP Contracted In Q1, but industrial production rose slightly in March (the most recent data) versus February. ECB will review the pace of emergency bond buys that it jacked up in March to prevent a rise in borrowing costs hurting a recovery.  Dovish rhetoric from the ECB suggested no hurry to slow the pace of buying under the €1.85 trillion ($2.24 trillion) Pandemic Emergency Purchase Program (PEPP).  Also, the G-7 countries agreed in principle in early June to fix the minimum corporate tax rate at 15% for large profitable corporations that use tax havens to minimize or avoid taxes.  US tech companies (Google, Amazon, Facebook and Apple) that use aggressive tax strategies looked the target.  A long way to go to get the details done and coincident lobbying, however.


David Burkart, CFA

Coloma Capital Futures®, LLC
Special contributor to aiSource