US outlook let the good times roll. The U.S. economy has warmed. Signs show that a strong recovery, albeit delayed, is starting to take hold as strengthening sentiment readings indicate that people are ready to let the good times roll, say S&P Global Ratings.
An improving vaccination outlook, faster reopening schedule, and the $1.9 trillion stimulus “shot in the arm,” along with a $900 billion package approved in December, all point to a seismic shift in the U.S. economic outlook relative to where it stood in December 2020. Forecasts of real GDP growth for 2021 and 2022 are 6.5% and 3.1%, respectively, up from 4.2% and 3.0% in our December report, with their 2021 GDP forecast (and now the Fed’s) targeting the highest reading since 1984.
With both business and consumer confidence well into expansion territory, the U.S. economy is on the mend. Even accounting for a possible resurgence of the virus later in the spring, it’s hard to see a contraction this year that is severe, broad, or long-lasting enough to be considered a recession by the National Bureau of Economic Research. The risk for recession over the next 12 months is now 10% to 15%, down sharply from the 20% to 25% range in January and around the U.S. economy’s long-term unconditional recession risk average of 13%.
The American Rescue Plan (ARP), which was signed into law on March 12, will lend a generous helping hand to the U.S. recovery this year and the next, boosting economic activity by an additional $503 billion in 2021 alone, and helping create 600,000 more jobs in 2021 than without the ARP. However, demand-driven stimulus is temporary and usually doesn’t pay for itself. Other fiscal policies, such as infrastructure, if chosen wisely, may be a long-term solution, providing the productivity boost needed to help get the U.S. expansion back on track. President Joe Biden is expected to prioritize infrastructure with a bill in the fourth quarter, helped by another reconciliation available this calendar year.
While the economy may have turned a corner, the road ahead is long for the millions who remain unemployed. The recovery in U.S. jobs growth remains soft, despite recent job gains, and the labor market is 9.5 million jobs short of the pre-pandemic peak. And while the February unemployment rate was down to 6.2%, 10 million people are still unemployed, with 41.5% long-term unemployed. The unemployment rate is even higher (8.6%, or 14.2 million people) when adjusting for a smaller labor force since February 2020.
At its March meeting, The Federal Open Market Committee (FOMC) seemed to agree. While the Fed sharply revised up its GDP forecast, it was clear that it expects inflation to remain low, despite a likely spike in inflation in the second quarter on COVID-19 distortions. Moreover, it emphasized that with around 10 million people without jobs, the jobs market is far from healed. With that in mind, and the Fed staying on the sidelines until it begins to slow down its large scale asset purchases in second-quarter 2022. Expectations are that its policy interest rate won’t “lift off” until third-quarter 2023.
Stimulus: Taking Care Of Business
President Biden kept his word, stabilizing the health of the American population and the U.S. economy.
The pace of COVID-19 vaccines administered picked up, crossing 2.3 million vaccinations per day (seven-day average) in the week of March 16 as weather and supply improved. The Biden Administration now says that all Americans will be eligible for vaccinations by May 1, with the nation closer to normalization by July 4. Meanwhile, daily new cases and hospitalization rates continue to decline, and authorities are easing restrictions on social distancing, all pointing to a solid second half of the year.
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