The US economy is set to grow faster than expected – reaching pre-pandemic levels by the middle of this year, according to the Congressional Budget Office.
In data released Monday, the government number crunchers said unemployment is set to fall to 5.3% – from 6.8% in 2020 – by the end of 2021. Still, it will take until 2024 for unemployment to fall to levels seen before the COVID-19 pandemic struck and whacked the job market.
The economy will grow 4.6% in 2021 after contracting 3.5% in 2020, powered by a resumption of business activity and coronavirus rescue spending, the CBO says.
That’s faster than what had been predicted in July, The Wall Street Journal reports. The agency said then that the economy would not be back pre-pandemic levels until mid-2022.
The CBO said its forecasts had changed ‘in large part because the downturn was not as severe as expected and because the first stage of the recovery took place sooner and was stronger than expected’.
Still, growth will taper off to below 2% by the end of the decade, the CBO projects.
The non-partisan budget referee said its latest forecasts are based on current laws passed by January 12, and do not include any executive actions or stimulus proposals by President Joe Biden’s administration.
The U.S. economy will grow 4.6% in 2021 after contracting 3.5% in 2020, the Congressional Budget Office forecast Monday. That’s faster that what they had predicted in July
In data released Monday unemployment is set to fall to 5.3 per cent – from 6.8% in 2020 – by end of 2021. But, despite the optimism, it will still take until 2024 for the number of Americans with jobs goes back to the numbers seen before COVID-19
Biden’s supporters can point to the CBO’s projection of a three-year recovery in hiring as a need for more aid as part of his $1.9 trillion plan.
Jen Psaki, the White House press secretary, said the CBO projection ‘is not a measure of how each American family is doing,’ adding that the administration’s ‘focus is on what the American people need to get through this crisis.’
But Republican lawmakers can simultaneously argue that less money is needed to boost the economy because the CBO estimates that the total economy will return to its pre-pandemic size in the middle of this year.
The CBO said it expects U.S. real gross domestic product growth to slow to 2.9% in 2022 and 2.2% in 2023. Real GDP will average 1.7% for the 2026-2031 period, according to the CBO forecasts. So-called ‘real’ GDP takes into account inflation.
The forecasts will form the basis for an update of the agency’s U.S. budget projections for the 2021-2031 period, which will be released later in February.
Those projections form a baseline for measuring the fiscal costs of proposed legislation, such as Biden’s $1.9 trillion COVID-19 stimulus proposal.
‘Over the course of the coming year, vaccination is expected to greatly reduce the number of new cases of COVID-19, the disease caused by the coronavirus. As a result, the extent of social distancing is expected to decline,’ CBO said in its economic forecast report.
The report assumes that the average U.S. unemployment rate will fall to 5.7% in 2021 from 8.1% in 2020, with the number of people employed reaching pre-pandemic levels in 2024.
But it said inflation as measured by the Consumer Price Index excluding food and energy costs will rise from 1.6% in 2021 to 2.1% in 2022, above the Federal Reserve’s nominal 2% inflation target.
‘We foresee record-breaking consumer spending growth in 2021 with households benefiting from a watered-down $1.2 trillion version of Biden’s rescue plan, vaccine diffusion gradually reaching two thirds of Americans by July and employment accelerating this spring,’ said Gregory Daco, chief U.S. economist at Oxford Economics in New York.
People wait in line for help with unemployment benefits in Las Vegas
People check in at a food bank held at Los Angeles Boys & Girls Club in December
The U.S. economy grew at a 4% annual rate in the final three months of 2020 and shrank last year by the largest amount in 74 years.
For 2020 as a whole, a year when the coronavirus inflicted the worst economic freeze since the end of World War II, the economy contracted 3.5%.
The economic damage followed the eruption of the pandemic 10 months ago and the deep recession it triggered, with tens of millions of Americans left jobless.
A government report released last week estimated that the nation’s gross domestic product — its total output of goods and services — slowed sharply in the October-December quarter from a record 33.4% surge in the July-September quarter.
That gain had followed a record-shattering 31.4% annual plunge in the April-June quarter, when the economy sank into a free-fall.
Figures released last Thursday show that number of Americans applying for new unemployment benefits fell slightly in the previous week but remained at a historically high level of 847,000.
Before the virus erupted in the United States in March, weekly applications for jobless aid had never topped 700,000, even during the Great Recession.
Even as the economy shrank last year, the stock market managed to rise sharply
The economy will grow 4.6% in 2021 after contracting 3.5% in 2020, powered by a resumption of business activity and coronavirus rescue spending, the CBO say
Even as the economy shrank last year, the stock market managed to rise sharply, with the S&P 500 index gaining 16%.
The disparity between the two reflected a time-tested adage: The stock market is a forward-looking indicator, with investors focused on prospects for future corporate profits and economic health rather than on the current state of the economy.
So even as the economy was sinking last year, investors looked ahead to hopes for vaccines and government aid and to solid company profits, especially among tech companies, which drove last year’s gains.
The pandemic’s blow to the economy early last spring ended the longest U.S. economic expansion on record — nearly 11 years.
The damage from the virus caused GDP to contract at a 5% annual rate in last year’s January-March quarter. Since then, thousands of businesses have closed, nearly 10 million people remain out of work and more than 400,000 Americans have died from the virus.
Last week, the International Monetary Fund forecast that the U.S. economy will grow 5.1% this year and 2.5% in 2022.
‘The labor market is struggling this winter, but better times are ahead,’ said Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Pennsylvania.