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US ECONOMIC OUTLOOK

The Conference Board Economic Forecast for the US Economy

January 13, 2021

 

Real GDP growth will probably rise by 3.5 percent* (annualized rate) in 4Q20 and 2.0 percent** in 1Q21 as the US economy continues to wrestle with the COVID-19 pandemic. While the economy has partially rebounded from a deep contraction in the first half of 2020, a variety of factors will determine how the recovery unfolds in 2021. Key variables include: a) the scale of the ongoing COVID-19 resurgence and any resulting lockdowns, b) the deployment and effectiveness of COVID-19 vaccines, c) the size and timing of fiscal stimulus, d) the status of labor markets and household consumption, and e) the degree to which volatility in the US political transition affects consumer and business confidence. 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

Our base case forecast yields 1Q21 real GDP growth of 2.0 percent* (annualized rate), and an annual expansion of 4.1 percent for 2021, following an annual contraction of 3.5 percent for 2020. We view this scenario as the most probable. It assumes: a) new cases of COVID-19 peak in early 1Q21 but no widespread lockdowns are implemented, b) vaccines are deployed gradually in 1Q21 but volumes accelerate into 2Q21, c) the December 2020 stimulus package is fully deployed in 1Q21 and an additional stimulus package is deployed in 2Q21, d) labor markets and consumption weaken slightly in 1Q21 but rebound in 2Q21 and 3Q21, and e) the political transition does not result in a hit to consumer or business confidence. These assumptions yield a lull in the recovery in 4Q20 and early 1Q21, but a steady acceleration of economic activity that peaks in the summer months as consumers eagerly spend on services and goods that they had forgone in 2020. In this scenario US monthly economic output returns to pre-pandemic levels in August 2021.

Upside Forecast

Alternatively, we offer a second more optimistic scenario in which the economy grows 6.4 percent for 2021, following an annual contraction of 3.5 percent for 2020. This scenario assumes: a) new COVID-19 cases fall dramatically in late 1Q21 and social distancing policies loosen, b) vaccines are deployed rapidly in 1Q21 and universally available in early 2Q21, c) the December 2020 stimulus package is fully deployed in early 1Q21 and an additional stimulus package is rolled out in late 1Q21 / early 2Q21, d) a strong rebound in consumption and employment in 1Q21, and e) the political transition does not result in a hit to consumer or business confidence. In this scenario US monthly economic output returns to pre-pandemic levels in April 2021.

Downside Forecast

Finally, we offer a third more pessimistic scenario in which the US economy contracts in 1Q21 before stabilizing over the summer. This scenario yields annual growth of 0.8 percent in 2021.  It assumes a) a large spike in COVID-19 cases in 1Q21 resulting in widespread lockdowns, b) a lengthy vaccines distribution period and / or vaccine ineffectiveness against new COVID-19 strains, c) no additional fiscal stimulus in 2021, d) a deterioration in unemployment and consumption in the first half of 2021, and e) a very volatile political transition that disrupts business and consumer confidence. Under this scenario US monthly economic output does not recover to pre-pandemic levels until sometime in 2022.

 

* The Conference Board is upgrading its forecast of 4Q20 real GDP growth from 2.8 percent (annualized rate) to 3.5 percent (annualized rate). This upgrade is due to stronger than expected economic indicators in November and December.

** The Conference Board is upgrading its forecast of 1Q21 real GDP growth from 0.7 percent (annualized rate) to 2.0 percent (annualized rate). This upgrade is due a second round of stimulus that was passed in December, continued progress in the deployment of multiple COVID-19 vaccines, and a stronger than expected growth hand-off from 4Q20.

 

The U.S. Economic Forecast

 

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


 20202021201920202021
 
I
Q*
II
Q*
III
Q*
 IV
Q
I
Q
II
Q
III
Q
 IV
Q
ANNUAL
ANNUAL
ANNUAL
Real
GDP
-5.0 -31.4 33.4 3.5 2.0 3.6 6.1 4.6 2.2 -3.5 4.1
Real
Consumer
Spending
-6.9 -33.2 41.0 3.4 3.6 4.0 7.1 4.9 2.4 -3.8 5.2
Residential
Investment
19.0 -35.5 63.0 20.0 7.0 6.0 5.0 5.0 -1.7 5.2 10.9
Real
Capital
Spending
-6.7 -27.2 22.9 6.6 2.4 3.7 4.5 4.8 2.9 -4.4 3.9
Exports -9.5 -64.4 59.6 15.2 3.0 5.1 7.1 5.1 -0.1 -13.3 4.6

*Actual data

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