It was supposed to be a dark winter for the economy.
But supported by government humanitarian aid, declining COVID-19 cases and vaccine deployment, growth is developing rapidly and the economy is expected to explode this year as restrictions related to the pandemic ease.
Some economists even predict that by the end of 2021 and throughout 2022, the country’s gross domestic production will be larger than it would have been had the health crisis not occurred.
“This is a particularly remarkable result, especially considering that (in the aftermath of the great recession of 2007-09), the US economy never really got back on its pre-recession path,” said wrote Morgan Stanley chief economist Chetan Ahya in a note to clients. .
Barclays, Morgan Stanley and Oxford all forecast growth of around 6.5% this year, which would be the best since 1984, while Goldman Sachs is looking for a 7% lead.
Other economists are not so optimistic, but still expect much stronger growth than expected.
That’s not to say the crisis will avoid the long-lasting scars experts feared: closed businesses, millions of long-term unemployed Americans, and millions more who have dropped out of the workforce. But the more robust recovery should limit the damage.
Some experts argue that faster growth also comes with the risk of accelerating inflation that could ultimately trigger a recession.
And more contagious variants of the virus could hurt the optimistic outlook.
The stimulus fueled the renewal
The main reason for the brighter forecasts? Uncle Sam.
The $ 900 billion package passed by Congress in December provided stimulus checks of $ 600 for most Americans and extended unemployment benefits for 11 million people, adding a weekly federal supplement of $ 300. The $ 1.9 trillion measure proposed by President Biden – most of which is expected to pass because Democrats control the Senate – would provide another $ 1,400 stimulus check to individuals and extend jobless benefits until September, adding an additional $ 100 to the federal bonus.
“We’ve had loads of stimulus,” says Jonathan Millar, deputy chief US economist at Barclays.
Consumers are overflowing with money
So far, relief payments, including those the federal government made last year, have put a collective $ 1.5 trillion in the pockets of Americans – a windfall expected to reach $ 2 trillion. dollars in early March, according to Morgan Stanley. Consumers are already spending their cash reserve. Retail sales jumped 5.3% in January as shoppers splurged on cars, furniture, clothing and appliances.
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At the same time, daily COVID-10 cases fell to 68,000 from 250,000 in January, based on a seven-day moving average, according to High-Frequency Economics. And hospitalizations are down in all states, Oxford says. This encourages more Americans to visit restaurants and shops and prompts some cities and states to relax restrictions, Daco says. New York City will allow restaurants to operate at 35 percent of capacity on Friday, down from 25 percent.
The turnover of restaurants and bars, the sector most affected by the health crisis, climbed 6.9% last month.
As a result, JP Morgan Chase estimates that the economy will grow at an annual rate of 5% in the current quarter, while Oxford expects a gain of 7.1%, figures which assume that the stimulus of 1.9 trillion dollars will pass and start increasing spending as early as March. In December, with the outbreak of the pandemic, many economists estimated that GDP would stagnate or even decline at the start of the year.
“This year is going to start a lot stronger because of consumer spending,” and that should help propel vigorous growth later in the year, said Gregory Daco, chief US economist at Oxford.
The roll-out of vaccines which some experts say is also expected to boost herd immunity by mid-year and, with the warmer weather, prompt consumers to visit restaurants, travel and open their wallets .
While Daco doesn’t expect the economy to reach its pre-pandemic level, he says that milestone would be reached if Congress approves another trillion to $ 2 trillion in stimulus as part of the long-term spending plan proposed by Biden to modernize infrastructure and respond to climate change, among other initiatives.
How many jobs will return?
After the United States recouped 12.4 million, or about 56%, of the 22.4 million jobs cut last spring, Millar and Daco estimate that an additional 6 million jobs will be clawed back this year. That would leave another 4 million jobs missing, suggesting that the crisis will leave lasting scars despite an economy that could restart quickly.
Most of those jobs are expected to resume by the end of 2022, Millar says. Yet the number of people out of work for six months or more fell from 1.3 million before the pandemic to 4 million, the highest number since the end of 2013. These workers traditionally find it more difficult to find a job because of their skills. erode or employers are less willing to hire. their.
And more than 100,000 restaurants have closed permanently, estimates the National Restaurant Association. Maybe 50-75% will be replaced with new outlets in a year or two, say Daco and Millar. But that means that many jobs will be lost in the long run. Unemployed restaurant workers will need to retrain in growing fields, such as technology or e-commerce. While many will, others will struggle with such changes.
These discouraged workers may stay out of the workforce. Daco expects the share of Americans working or looking for a job to rise from 61.4% currently to 62.4% by the end of the year. Millar does not expect the figure to return to its pre-pandemic level of 63.3% until 2023.
Yet, he says, healthy job creation, bolstered by federal aid, should lessen the blow.
“There will be an element of scarring,” he says, but “that’s not the problem we thought it would be.
Is inflation a threat?
With soaring consumer spending, employers may be struggling to find employees, especially with many Americans not working or looking for jobs, economists say. This poses an inflation risk as employers raise wages to attract workers, leading the Fed to sharply raise interest rates and “increase the likelihood of a recession,” writes Morgan Stanley’s Ahya.
The Fed has promised to keep its key rate near zero even after inflation surpasses the 2% target, but soaring prices could force its hand, it suggests.
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Millar and Daco disagree, saying inflation will likely rise above 2% by the middle of the year, but fall back as more Americans return to the workforce. They point to long-term forces that have held back price increases, such as discounted online shopping and consumer expectations that inflation will remain low.