Global Economic Review: September 2021



  • Delta Variant Impact definitively began slowing in the US (see graph right), but cannot say that it happened fast enough. Looking at a graph from the same sourceDaily New Cases ( for Japan, its peak at roughly the same time was just under 23,000 (20% of the US peak) and is already back to the pre-Delta level of 1,200 cases.  That was despite the Tokyo Olympics being held at that time.  India, with its much larger population has been running at about 35,000 cases per 7-day average since coming down from its Delta peak in May.  Given that its vaccination rate was about half that of the US and Japan (30% versus 60% in round figures) and the case rate was less than one-fifth that of the US (population adjusted) it must be doing something comparatively right than the US.  Seems like American politicians can learn something.


  • Other Notable Headlines included the news that Sweden and Denmark both halted the use of Moderna’s product for people under the age of 30 due to heart inflammation (myocarditis) concerns – Pfizer’s drug would continue to be applied. Recall that Moderna’s shot had about 100 micrograms of the mRNA solution per dose versus the 30 in Pfizer’s, which was considered part of the cause.  In September, The Lancet (the UK’s primary medical journal) published an international study arguing against boosters at this time as the best drugs and doses were unknown as well as additional side effect risks.  An FDA expert panel also recommended that boosters be given only to the vulnerable and elderly.  On the other hand, Israel made the Pfizer booster mandatory, with the original two-shot regimen determined inadequate after six months.  Finally, Merck and other drug companies started to announce late-stage clinical trials for antiviral pills to treat COVID.  Similar to other treatments both sanctioned and off-label, the pills need to start to be taken soon after diagnosis.  Based on information provided by Bloomberg, “Molnupiravir” would cost $700 for a five-day course, less than a third of the $2,400 for monoclonal treatments like Remdesivir.


  • Our thoughts and prayers go out to those taken ill and we hope that they have access to proper care and recover fully. Recalling that about 90% of hospitalizations suffer from one or more co-morbidities (obesity, high blood pressure, etc.), one should take active steps to get your body in good shape.




  • Q3 GDP Growth: the Atlanta Federal Reserve’s Q3 GDP estimate was cut in half again to +1.3% (originally at +6.3% annualized at the end of July down to +3.7% annualized at the end of August) due to much lower forecasts from third-quarter real personal consumption expenditures growth and third-quarter real gross private domestic investment growth.House Price Growth Historically Leads Rent Inflation September employment numbers again disappointed and net exports also declined more than expected.  The unemployment percentage rate fell to 4.8% from 5.2% which sounded good, but payrolls increased only +194,000 (though August’s number was revised higher), much lower than the +500,000 expected.  The government sector was a large miss (-123,000) and private payrolls grew less than expected (+317,000).  The labor participation rate (the % of people active in the workforce) fell slightly, meaning fewer people are looking for jobs.  So far the extra unemployment payments that expired on September 6th had marginal impact in forcing people back into the workforce.  Bloomberg also cited concerns and challenges from vaccine mandates may be contributing to employment turnover (e.g., the nursing sector dropped by -37,600).  American incomes fell last year despite increased government aid tied to the pandemic that prevented millions from falling into poverty, Census Bureau figures showed.  Median household income was roughly $67,500 in 2020, down -2.9% from the prior year, when it hit an inflation-adjusted historic high.  US industrial production ticked only slightly higher in August (+0.4% m/m) as economists blamed Hurricane Ida shutdowns, particularly in the energy and grain industries and related international trade, for missing greater gains.  Factory orders beat expectations (+1.2% versus +1.0% forecasted) and core capital goods accelerated (+0.6% versus +0.3% in July).  Retail sales jumped +0.7% in August instead of falling per the surveys.


  • Inflation Made Headlines But Fed Still Not Worried as Powell confirmed at the Fed’s recent meeting that buying fewer bonds (AKA “tapering”) could be announced at theContainer Ships at Anchor November 2-3 gathering but may wait until 2022. The above employment miss would prompt the Fed to delay a taper, but the impact may just be the pacing, not the timing.  In addition, a more modest month-on-month increase in consumer prices could also ease taper pressure. The August CPI increased +0.3% from July and +5.3% from a year ago and the core was a more modest +0.1% m/m.  While the Fed may describe this inflation as “transitory,” that word does not mean “inconsequential.”  The graph above shows the potential rent inflation increase due to home price growth – there is a lag but not much.  Also, shipping delays still exist as the graph (right) of waiting ships reached new highs.  FedEx also announced that it will increase prices next year due to fuel costs and bottlenecks.


  • Government Spending Spree Stalled as negotiations tied up next year’s spending bills as well as the additional $3.5 trillion social and climate-change spending plan. A stop-gap measure to keep the government funded through early December bought some time but the big spenders want no compromise with the less-big spenders (and who all do not want to compromise with the no-big spenders).  Early indications were that somewhere between $2 and 3.5 trillion will be authorized in addition to the $1.1 trillion spending bill funded by COVID money, new taxes and “efficiency gains” that will direct about $400 billion to roads, power grids, rail, broadband, water and mass transit.  Another $200 billion is for electrical vehicle research and “clean energy.”  Sweeping tax hikes and the amount of additional debt seemed to be the core of the wrangling, with each politician having their own special interests.




  • Chinese Macro Information offered a view into their slowdown with August’s retail sales up only +2.5% y/y vs median estimate of +7.0%, industrial production increased +5.3% y/y vsPrivate Consumption Slows Drastically in August after Covid Outbreak median estimate of +5.8% (see both right) and fixed assets investment climbed +8.9% y/y in Jan-August vs the median estimate of +9.0%. Construction investment contracted -3.2% in the eight months of the year, a reflection of the government’s steady tightening of property restrictions as part of a campaign against financial risk (and which wreaked havoc on Evergrande and the other property development firms).  The unemployment rate held at 5.1%.  Exports from China surged +25.6% year-on-year to a record $294 billion in August 2021, far above market estimates of +17.1% and accelerating from a +19.3% rise in July.  Likewise, imports by China jumped by +33.1% year-on-year to a record of $236 billion, exceeding market estimates of +26.8% and after a +28.1% growth a month earlier.  Imports of coal jumped +35.8% y/y due to tight domestic supply and strong demand, but there are still insufficient supplies based on factories working short weeks.  Port bottlenecks from summer looked to be shifting to US and other regions.


  • Property developer Evergrande Group continued to miss bond payments, including to two of its largest bank creditors. While the amounts were not disclosed, Evergrande owedNon-Financial Corporate Debt-to-GDP Ratio about $88 billion to financial institutions and about half of that was due within a year.  Basically the firm’s problem was that it had $202 billion in property developments / under construction in 2nd and 3rd tier cities and with poor quality – according to local media, apartments were offered at 28% discount to their market value, and parking lots were given away at a 52% discount.  Evergrande was the largest property developer in China with 778 building projects in 223 Chinese cities and 163,000 employees.  Borrowing costs have risen with Chinese speculative bonds up to 13% from 10% in June.  This debt-fund overbuilding spree seemed to be catching up to China generally – recall that their empty apartments could house about 90 million people (the population of Germany).  Real estate is 28% of Chinese GDP, higher than the US at 20%, for example. Another view on the economic threat can be seen in the graph to the right – look at that leverage!  While the central government has the money and control to slow or limit the damage, the process of de-leveraging will affect the entire Chinese corporate economy and to a certain extent, the world.


  • Japan’s Export Recovery slowed more than expected in August as a COVID-driven wave of the coronavirus weighed on the global trade recovery and supply chain blockages crimped auto shipments (see the graph above on ships waiting at the largest US west-coast port). The value of Japan’s overseas shipments increased +26.2% compared with last year’s depressed level, but gains slowed from July’s +37% pace.  Core machine orders also slowed, implying a further slowdown in Japan and abroad.  Retail spending also fell for the fourth month in a row but with the case count back to lows, this may reverse.




  • Eurozone July Data looked good (e.g., industrial production beat expectations, rising +1.5% m/m, more than twice that expected). The prognosis, however, was not as rosy as GermanDutch Next-Month Gas, German Front-Month Power Surge on Tight Supply industrial orders tumbled -7.7% in August, as supply bottlenecks and shortages hit factories.  Natural gas and associated electrical prices accelerated higher, going parabolic as the graph shows.  Northwest European gas storage was at the lowest level in years – at about 20% below where it normally is.  Critical Russian supplier Gazprom’s facilities are basically empty as it “had” to prioritize its home market and Europe had little alternative, especially when Asia is scooping up other LNG supplies.  Perhaps it was a strategic error for Europe to close its coal and nuclear plants and make itself dependent on external supplies and the less consistent energy sources of solar and wind.  Social unrest picked up with for example German workers striking for higher pay as Europe’s inflation accelerated higher like seen in the US, reaching an annualized rate of +3.4% (Germany’s was higher at +4.1% in September – a 29-year record).  Just how “transitory” will these price increases be?  And will their government bonds remain at negative yields?  And can they handle these economic pressures with their cumbersome EU bureaucracy, high-cost social programs and inflexible employment regulations (let alone COVID passports)?


David Burkart, CFA

Coloma Capital Futures®, LLC
Special contributor to aiSource