Vaccines could unleash a hobbled US economy and spur job growth in 2021. But risks loom.
Ted Adams, 77, has postponed countless purchases while crouching during the pandemic.
Adams and his wife, who live in Minneapolis, have avoided traveling to their vacation home in Palm Desert, California, buying new furniture for that house and a new Mercedes-Benz S-Class.
But the distribution of COVID-19 vaccines "gave me confidence that the stock market will be more stable and that life and the economy will be back to normal by the summer," says the retired serial entrepreneur. "I was hesitant about buying a new car, but now plan to do it shortly after my vaccination. We have a lot of pent-up expenses that we will likely make once this is over."
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The launch of the vaccines in December set the stage for the US economy to perform at its best in two decades next year, as spread spreads across the country.
First, however, the nation will have to endure what is probably one of the bleakest first quarters since the great 2007-2009 recession.
In other words, America's worst health crisis in a century is likely to cause wild swings in the economy for a second straight year. This time around, however, the overall bottom line is likely to be favorable as the breakthrough vaccine's growth will ultimately spike and the country's gross domestic product will return to pre-pandemic levels by the end of 2021.
"We are seeing very strong growth that may start in the second quarter," said Barclays economist Jonathan Millar. "It's been a pretty strong year."
That doesn't mean the economy will return to normal. The pandemic leaves a legacy of millions of unemployed Americans and thousands of closed businesses that will take years to reverse.
Economists surveyed by Wolters Kluwer blue chip economic indicators predict the economy will grow at an annual growth rate of 4% over the next year, the fastest pace since 2000. This would of course follow an estimated contraction of 3.5% in 2020. Die worst economic performance ever amid virus that caused states to abruptly shut down restaurants, malls, and other businesses. The slump saw a record GDP decline of 31.4% in the second quarter, followed by an unrivaled increase of 33.1% in the third quarter as many stores reopened.
A bleak start to 2021
Get ready for another roller coaster ride in 2021. The first quarter should be bleak. The outbreak has ramped up across the country, with records breaking cases, hospitalizations and deaths, and many states reintroducing business constraints and closings. Initial jobless claims, a measure of layoffs, were 803,000 seasonally adjusted for the week ended December 17, a sign that many employers are still shedding jobs as the pandemic imposes more business restrictions and discourages buyers.
Millar predicts the economy will weaken in the first three months of the year. And JPMorgan Chase expects production to decline slightly earlier in the year. There is also renewed uncertainty about the fate of a $ 900 billion government aid package designed to help small businesses renew unemployment benefits for 12 million Americans and send $ 600 checks to most people. President Trump slammed the bill, demanding higher payments of $ 1,200 to the Americans. Without the relief, Millar estimates GDP would decline by 1% to 2%.
However, the prevalence of vaccines is set to surge by April, and vaccines are expected to be widespread by mid-year, economists say, creating pent-up demand as millions of Americans return to travel, eat out, make movies, and other activities.
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COVID-19 vaccine creates trust
The vaccine "will instill a lot of trust," says Gus Faucher, chief economist at PNC Financial Services Group.
However, much is unclear about the course of the virus and its eradication. How quickly can the vaccine be distributed? How many Americans will be comfortable taking it? And while many of the laid-offs could get supplemental unemployment insurance if the government bailout goes into effect, benefits for $ 11.2 million will run out on March 7, according to the Century Foundation, a nonprofit think tank, and leftist economic policy institute.
You could severely limit your purchases.
It is therefore particularly difficult to forecast economic growth. Recently, 17 US Federal Reserve policy makers released an unusually broad range of GDP growth projections for 2021, ranging from near zero to just over 5%.
Better or worse?
"Things could be a lot better than expected and things could be a lot worse," says Faucher.
Most economists do not expect the US to experience another downturn. However, 63% of forecasters polled by the National Association of Business Economics last month said there was a 20 to 39% probability of such a double-dip recession.
Even if the most likely scenario plays out, and GDP returns to its prepandemic mark by the end of 2021, the downturn is sure to leave scars. Almost four million people have joined the ranks of the long-term unemployed - meaning they have been idle for more than six months since 2013 - this group has traditionally struggled to find a job because employers fear that their skills have deteriorated.
According to Yelp, the online reviews site, around 100,000 small businesses have closed permanently. It could be years before new companies replace them. According to Moody's Analytics, US employment will not reach its pre-crisis level again until the end of 2023.
Here's a look at some of the economy's strengths for the next year:
Consumption, which accounts for 70% of economic activity, is likely to drive growth. Under the CARES bill, passed by Congress in March 2020, the federal government sent 1,200 checks to most people to help Americans throw away an additional $ 1.4 trillion by October, Wells Fargo said.
After many people get vaccinated in 2021, they are likely to spend much of that money as well as some of the second incentive they receive from Uncle Sam and the savings they get from not traveling, eating, and other activities during the year 2020 have accumulated, says Millar. This should boost spending on services, which cratered during the crisis, even as stuck home consumers snapped up TVs, appliances, tablets, cars, computers, and other goods.
The economists surveyed by Wolters Kluwer predict that consumer spending will increase by 4.5% next year, the strongest since 2000.
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This rosy outlook carries risks. Forty percent of Americans surveyed by the Harris Poll in December said they are unlikely to take the vaccine or not at all once it becomes available.
Others seek more protection. Tekai Shu, 39, from Bristol, Tennessee, says his family canceled all four annual vacations this year - to the beach, Disney World, a national park and New York City. Even after they have been vaccinated, "I don't make family-related travel plans" until he's certain that COVID-19 cases are low in their target cities, Shu says, noting that both his wife and daughter have asthma.
The nation regained 12.3 million or 56% of the 22.2 million jobs lost in March and April as many workers on leave were recalled.
However, this means employment is still 9.8 million jobs below pre-pandemic levels. Monthly wage increases slowed from 4.8 million in June to 245,000 in November. With the rise of COVID-19, the country could cut jobs again in December, January or February, say Faucher and Millar.
The good news: warmer weather and increased vaccinations should lead to more store openings and livelier activity, contain layoffs and encourage stronger employment growth through spring, economists say.
Faucher predicts an average monthly job increase of 350,000 in 2021, up from 178,000 in 2019, while Millar predicts an average of 344,000. That should bring the unemployment rate down from 6.7% to a near-normal 5% by the end of 2021, says Millar.
However, Faucher predicts that unemployment will remain at 6.3% as the improving labor market attracts more discouraged workers who have stopped looking, as well as those who care for sick relatives and children who take distance learning from too Got home from.
Mary Roberts, 39, of Tallahassee, Florida, hopes that even the cruise industry hardest hit by the health crisis will be brought back to life. Roberts lost her job as a choreographer on cruise ships in March. It took her four months to receive unemployment benefits and had to withdraw her savings. Now she works four times part-time to pay the bills: dance studio teacher, Uber driver, caretaker in the office building, and facility manager in a yoga studio.
"It's exhausting and it's tough," she says.
In total, she earns 60% of her cruise wages. She has amassed $ 10,000 in credit card debt and suspended paying for her car. She's trying to get a week's meals out of a crock-pot dinner.
"My hope for the next year is that the cruise industry can come back and offer entertainment jobs," she says. Even with just a few trips back, "I hope I'll be on the front lines of creative directors and entertainers who can fix problems".
The real estate market was booming in 2020 as people confined to their homes sought larger spaces, typically in the suburbs, more millennials started families, and historically low mortgage rates cut monthly costs.
These trends are not going away. Although many employees will return to their offices after a vaccine is distributed, 90% of hiring managers plan to have employees work from home at least temporarily, according to a recent Gartner survey. Both Faucher and Millar are forecasting around 1.6 million new home construction starts next year, most of them since 2006.
Housing construction only accounts for 3 to 6% of the economy, but it has oversized ripple effects. For example, people who buy houses usually fill them with new furniture and appliances.
"I think housing construction will help us cope with the short-term problems," says Faucher in early 2021.
However, some parts of the economy could be weaker or mixed next year:
Business investment rose 21.8% on a year-on-year basis in the third quarter, and equipment spending, a key category, rose to a record 66.6%, pushing the latter above pre-pandemic levels. Much of that was driven by purchases of networking equipment for the work-at-home trend, and Faucher says it will continue to do so.
The vaccine will also boost business confidence. Business optimism continues to grow as President-elect Joe Biden eases the trade-related uncertainty created by Trump's wage wars with China and other countries, Wells Fargo says.
However, Millar believes spending on working from home will ease. And with customer demand still well below pre-crisis levels, companies have the capacity to generate stronger sales and therefore don't need to buy new factory machines, computers or printers, he says.
In the meantime, retail and office construction will continue to be shaped by the e-commerce and work-from-home movements, says Wells Fargo.
The economists surveyed expect business investment to grow a respectable 4% over the next year, but Millar is only aiming for a 1% advance.
Federal government spending should go up, due in part to the incentives, but state and local spending will again be weak as the pandemic increases healthcare costs and keeps revenues down. Millar predicts that total government spending will only increase by 1.3%.
Overseas growth is expected to accelerate and US exports to boost. This should help reduce the trade deficit, Wells Fargo says, which has a positive impact on growth.
Millar disagrees. As the US economy recovers, American consumers will buy even more goods from abroad, widening the trade gap, he says. The economists surveyed predict that the trade deficit will increase slightly.
Note that the forecasts for 2021 have a higher error rate than usual.
"There's more than a lot of uncertainty," says Millar.
This article originally appeared in the US TODAY: Economic Outlook 2021: The COVID-19 Vaccine Is Set To Boost Growth Over The Next Year
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