Last night 10 Republican Senators met with Pres. Biden and V-Pres. Harris to discuss the size of the next Covid-19 stimulus. Pres. Biden wants $1.9 trillion, while the group of 10 senators wants $600 billion, or just 31 percent as much as the President wants. Apparently, the meeting went very well with much civility filling the Oval Office and no name-calling. We must wait to see what decisions, if any, were reached by the two sides. You deserve to know more now.

As background, the Congressional Budget Office had earlier predicted that the economy was responding better to the earlier stimuli than expected, and their data now showed unemployment falling to 5.7 percent by the end of 2021, and GDP growth expected to average 3.7 percent for the year. In addition, the Conference Board, charged with predicting US economic growth stated:  “While the resurgence of COVID-19 and weak labor markets remain barriers to growth, the Conference Board expects the economy to expand by at least 2.0 percent (annual rate) in Q1, and then gain momentum throughout the year.”

I began forecasting in 1969. Since then I have studied and used econometric forecasting methods until I was nearly drowning in them. I made more than 1,000 forecasts, constructed at least 2,000 investment portfolios, gave management advice for a $50 billion portfolio, wrote approximately 1,000 economic/investment articles, and was the principal hands-on manager of $500 million of personal client assets. I had 800 clients and knew every one of them fairly well. My average compound annual rate of return to all clients was 14.9 percent during my 11-years tenure with them. Armed with that background, I decided to force my personal forecasts for the US economy onto you.

I have no idea how the CBO makes its determinations, but I am familiar with the Conference Board’s methodology. They use 10 variables, then take their weighted average in compiling their LEI (leading economic index). The US economy is currently in recession. GDP growth for 2020 was -2.66 percent.

Today, I use an artificial intelligence (AI) model that has 1500 variables as inputs. It produces predictions for 30 major indexes, mostly for the US, but also for indexes in Europe and the Far East. It also produces currency exchange rates for the dollar against about 10 other currencies. I did not design it, test it, nor do I participate in re-calibrating it. I use it to reduce its predictions down to much more refined models that I did design, that I have tested, and that I re-calibrate monthly. My results are so good that nobody is likely to believe them. I don’t care. My broker loves me.

This AI model currently shows 2021 US GDP quarterly data as follows:

Q1: -1.6 percent
Q2: +7.15 percent
Q3: +0.79 percent
Q4: +0.64 percent

Related Data: The AI predicted average annual growth rate: +1.45 percent. The US Labor Dept. shows the unemployment rate is currently 6.8 percent, or 10.5 million residents are unemployed. In December 2020 there were 26 states with more than 6.0 percent unemployed, including New York, Pennsylvania, Michigan, Florida, Texas, Illinois, Connecticut, and California. Virtually all state governors proclaim that they need lots more money to take care of the those afflicted with the Covid-19 virus. Moreover, there is a widespread belief among them that small businesses are in dire need of more money and more business. A stimulus injection of $600 billion is expected to raise GDP by 2.1 percent; while a $1.9 trillion stimulus would raise GDP by 3.49 percent. According to the Fed, the US capacity utilization rate is 74.5 percent, well below the 80 percent full capacity rate.

Conclusion: I can find no evidence that supports the Conference Board’s claim that the current U.S. GDP is more than 2.0 percent, nor any reasonable justification that the economy does not need a stimulus at all. Moreover, consumers tend to hunker down and spend less, not more, when a normal recession hits. A recession plus a pandemic with more than 2.2 million deaths, and 103 million confirmed cases worldwide will almost certainly extend the bias to stay hunkered and to lower forecasted economic data.  

Given the excess capacity of the US economy to grow by 5.5 percent above its normal rate, and the low interest rate environment, there is virtually no chance of a new surge in inflation.

On economic grounds, I conclude that the proposed $600 billion stimulus is too little; and the $1.9 trillion stimulus injection is fully justified now. On political grounds, the President will be blamed for a stimulus that was too little, or too late.