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US ECONOMIC OUTLOOK

The Conference Board Economic Forecast for the US Economy

April 14, 2021

The Conference Board forecasts that US Real GDP growth will rise to 5.0 percent (annualized rate) in Q1 21* and 6.0 percent (year-over-year) in 2021.* Following a lull in the economic recovery in November and December, growth improved in January before stalling in February due to adverse weather conditions. In March, however, the economic recovery continued to strengthen. We expect real GDP growth to accelerate further over the coming quarters as new COVID-19 infection rates decline further, the vaccination program continues to expand, and a large fiscal support program is fully deployed. Following a robust recovery in 2021, we forecast economic growth of 3.5 percent (year-over-year) in 2022.

While the economy has already partially rebounded from the deep contraction in the first half of 2020, a variety of factors will determine the way forward. Key variables include: a) the spread of the virus itself; b) the deployment and effectiveness of COVID-19 vaccines; c) the impact of fiscal and monetary support; d) the status of labor markets and household consumption; and e) the pace at which mobility and travel restrictions are lifted. While there are many possible outcomes for these factors, The Conference Board has generated three potential recovery scenarios based on specific sets of assumptions.

Base Case Forecast

As noted above, our base case forecast yields Q1 21 real GDP growth of 5.0 percent (annualized rate), and an annual expansion of 6.0 percent (year-over-year) in 2021.* The recovery will likely continue into next year and yield an annual growth rate of 3.5 percent (year-over-year) in 2022. We view this scenario as the most probable. It assumes: a) new cases of COVID-19 peaked in early Q1 21 and many social distancing restrictions are subsequently retracted in Q2 21 and Q3 21; b) COVID-19 vaccinations become broadly available in Q2 21, and are universally available in early Q3 21; c) the $1.9 trillion in fiscal support approved in March is deployed in Q2 21 and Q3 21, and d) robust improvements in labor markets and consumption in Q2 21 and Q3 21. In this scenario, US monthly economic output returns to pre-pandemic levels in April 2021.

Upside Forecast

Alternatively, we offer a second more optimistic scenario in which the economy grows 6.7 percent (year-over-year) in 2021. This scenario assumes: a) new COVID-19 cases fall dramatically over the coming months and all social distancing policies are eliminated in Q2 21; b) vaccines are universally available by the end of Q2 21; c) the $1.9 trillion in fiscal support approved in March is deployed in Q2 21 and Q3 21; d) the new Administrations $2.3 trillion infrastructure and tax plan is passed by Q3 2021 and begins to hit the economy before the end of 2021; and e) faster than expected improvements in labor markets and consumption in Q2 21. In this scenario, US monthly economic output exceeds the level it may have reached had the pandemic never occurred.

Downside Forecast

Finally, we offer a third more pessimistic scenario in which the US economy grows by just 4.9 percent (year-over-year) in 2021. This scenario assumes a) new cases of COVID-19 rise as vaccine-resistant mutations result in an additional wave in Q4 21; b) distribution of vaccines is prolonged and mutations render them ineffective; c) the Federal Reserve signals that it will begin to raise rates earlier than anticipated; d) unemployment deteriorates and the consumption recovery stagnates; and e) a large correction in equity markets hurts consumer and business confidence. In this scenario, US monthly economic output drops back below pre-pandemic levels by the end of 2021.

* The Conference Board is upgrading its forecast of 2021 real GDP growth from 5.5 percent (year-over-year) to 6.0 percent (year-over-year). This upgrade is due to stronger than expected economic indicators in Q1 21, the rapid deployment of a $1.9 trillion fiscal support package, and a faster than projected vaccination campaign.

 

The US Economic Forecast

 

THE CONFERENCE BOARD BASE CASE ECONOMIC OUTLOOK, 2019-2020-2021
Percentage Change, Seasonally Adjusted Annual Rates


 202020212019202020212022
 
I
Q*
II
Q*
III
Q*
 IV
Q*
I
Q
II
Q
III
Q
 IV
Q
ANNUAL
ANNUAL
ANNUAL
ANNUAL
Real GDP -5.0 -31.4 33.4 4.3 5.0 8.6 6.8 4.2 2.2 -3.5 6.0 3.5
Real Disposable Income 2.6 48.5 -17.4 -10.1 38.0 -8.0 -4.0 -2.0 2.2 5.8 4.0  
Real Consumer Spending -6.9 -33.2 41.0 2.3 7.7 9.5 7.9 5.1 2.4 -3.9 7.2  
Residential Investment 19.0 -35.5 63.0 36.6 12.0 16.0 12.0 7.0 -1.7 6.1 17.9  
Nonresidential investment -6.7 -27.2 22.9 13.1 7.6 7.7 7.7 6.1 2.9 -4.0 7.7  
Inventory Change (bln chn '12$) -80.9 -287.0 -3.7 62.1 10.0 37.0 37.0 12.0 48.5 -77.4 24.0  
Total Gov't Spending 1.3 2.5 -4.8 -0.8 0.4 0.9 0.9 1.5 2.3 1.1 -0.2  
Exports -9.5 -64.4 59.6 22.3 3.0 8.6 6.6 6.1 -0.1 -12.9 6.4  
Imports -15.0 -54.1 93.0 29.9 6.1 8.1 6.6 5.1 1.1 -9.3 12.7  
Unemployment Rate (%) 3.8 13.1 8.8 6.8 6.2 5.6 5.0 4.6 3.7 8.1 5.3  
PCE Inflation (%Y/Y) 1.3 -1.6 3.7 1.5 1.8 2.3 2.1 2.1 1.5 1.2 2.1  
Core PCE Inflation (%Y/Y) 1.6 -0.8 3.4 1.3 1.6 2.2 2.0 2.2 1.6 1.4 2.0  

*Actual data


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