Ted Adams, 77, has put off countless purchases while walking around during the pandemic.
Adams and his wife, who live in Minneapolis, have abandoned their trips to Palm Desert, California, the vacation home, as well as buying new furniture for that home and a Mercedes-Benz S-Class.
But the distribution of COVID-19 vaccines “has given me confidence that the stock market will become more stable and that life and the economy will return to normal by the summer,” says the retired entrepreneur. “I was hesitating about buying a new car but now I’m planning to do it soon after I vaccinate … We have a lot of pent-up spending that we’ll probably do once this is over.”
The December vaccination launch paved the way for the US economy to perform at its best performance in two decades next year as distribution spread across the country.
First, though, the nation must swing during the first quarter which will likely be among the bleakest since the Great Depression of 2007-2009.
In other words, America’s worst health crisis in a century is likely to lead to the second consecutive year of extreme swings in the economy. This time, however, the overall outcome is expected to be favorable as growth eventually picks up in the game-changing vaccine and the country’s GDP returns to its pre-pandemic level by the end of 2021.
“We are really seeing strong growth potentially starting in the second quarter,” says Jonathan Millar, an economist at Barclays Bank. “It’s a very strong year.”
This does not mean that the economy will return to normal. The pandemic leaves a legacy for millions of unemployed Americans and thousands of shuttered firms that will take years to reverse.
Economists surveyed by Wolters Kluwer Blue Chip Economic Indicators predict that the economy will grow at an annual rate of 4% next year, the fastest pace since 2000. This, of course, comes on the heels of an estimated contraction of 3.5% in 2020, the worst economic supply. It was recorded amid a virus that has prompted states to suddenly close restaurants, malls and other businesses. The recession saw a record 31.4% decline in GDP in the second quarter, followed by an unrivaled rise of 33.1% in the third quarter as several outlets reopened.
A bleak start to 2021
Buckle up for a rollercoaster ride again in 2021. The first quarter will likely be bleak. The outbreak escalated across the country, as cases, hospitalizations and deaths were recorded and many states restored work restrictions and closures. Initial jobless claims, a measure of layoffs, totaled 803,000 on a seasonally adjusted basis in the week ending Dec.17, a sign that many employers are still cutting jobs as the pandemic imposes more restrictions on businesses and discourages shoppers.
Millar predicts that the economy will tend to stabilize in the first three months of the year. JPMorgan Chase thinks production will decline slightly early in the year There is also renewed uncertainty about the fate of the government’s $ 900 billion relief package, which is designed to help small businesses, replenish unemployment benefits for 12 million Americans, and send $ 600 checks to most individuals. President Trump criticized the bill and demanded higher payments of $ 1,200 for Americans. Millar estimates that without relief, GDP will drop 1% to 2%.
But vaccine distribution is expected to increase sharply by April and vaccinations are likely to spread by mid-year, economists believe, unleashing pent-up demand as millions of Americans resume traveling, dining out, eating movies and other activities.
The COVID-19 Vaccine inspires confidence
The vaccine “is going to inspire a lot of confidence,” says Jos Faucher, chief economist at PNC Financial Services Group.
However, much remains unclear about the course of the virus and its elimination. How quickly can the vaccine be given? How many Americans would feel comfortable taking it? And while many of those laid off may receive additional unemployment insurance if the federal relief measure becomes law, benefits of 11.2 million are set to expire on March 7, according to the Century Foundation, a non-profit think-tank, economic policy corporation. Left inclinations. Institute.
They can drastically curtail their purchases.
As a result, forecasting economic growth is challenging. Recently, 17 federal policymakers published an extraordinarily wide range of 2021 GDP growth projections, from nearly zero to just over 5%.
Better or worse?
“Things could be much better than expected and things could be much worse,” says Faucher.
Most economists do not expect the United States to slide into another contraction. But 63% of forecasters surveyed by the National Association for Business Economics last month indicated a 20% to 39% probability of such a double-dip recession.
Even if the most likely scenario is implemented and GDP regains the pre-pandemic mark by the end of 2021, the economic downturn is sure to leave scars. Nearly four million people have joined the ranks of the long-term unemployed – meaning they have been unemployed for more than six months – the largest number since 2013. This group has traditionally fought for a job because employers fear that their skills have eroded .
About 100,000 small businesses have closed permanently, according to the online review site Yelp. New companies may take years to replace. Employment in the United States will not return to pre-crisis conditions until late 2023, according to Moody’s analysis.
Here’s a look at some of the economy’s strengths next year:
Consumption, which makes up 70% of economic activity, is expected to boost growth. Under the CARES Act, passed by Congress in March 2020, the federal government sent $ 1,200 checks to most individuals, helping Americans shed an additional $ 1.4 trillion through October, according to Wells Fargo.
After so many people are vaccinated in 2021, they will likely spend a lot of that money, plus a large chunk of any other incentive they receive from Uncle Sam and the savings they have accumulated by forgoing travel, dining out, and other activities in 2020. Millar says. That should boost spending on services, which collapsed during the crisis even as home-stuck consumers buy televisions, tablets, tablets, cars, computers and other goods.
Economists polled by Wolters Kluwer expect consumer spending to grow 4.5% next year, the most since 2000.
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There are risks to this rosy look. Forty percent of Americans surveyed by Harris in December said they were neither very likely nor unlikely at all to take a vaccine as soon as it was available.
Others seek more guarantees. Tekai Shaw, 39, from Bristol, Tennessee, says his family has canceled all four annual vacations this year – to the beach, Disney World, the National Park and New York City. Even after they get vaccinated, “I will not make family travel plans” until he feels comfortable that COVID-19 cases in their destination cities are at low levels, says Shaw, noting that his wife and daughter have asthma.
The nation reclaimed 12.3 million jobs, or 56%, of the 22.2 million jobs lost in March and April as many of the workers who were called off were called up.
But this means that employment is still 9.8 million jobs below its pre-pandemic level. Monthly payroll gains slowed from 4.8 million in June to 245,000 in November. Faucher and Millar say that as the spread of the Corona virus escalates, the country could drop jobs again in December, January or February.
The good news: Economists say warmer weather and increased vaccinations should lead to more business reopening and faster activity, curbing waves of layoffs and spurring stronger job growth by spring.
Faucher predicts average monthly job increases of 350,000 in 2021 compared to 178,000 in 2019, while Millar expects an average of 344,000. That would reduce the unemployment rate by 6.7% to a near-normal 5% by the end of 2021, Millar says.
However, Foucher’s numbers will remain high at 6.3% as the job market improves attracting more frustrated workers who have stopped looking, as well as those caring for sick relatives and children learning remotely from home.
Mary Roberts, 39, of Tallahassee, Florida, hopes that even the cruise line industry, hit hard by the health crisis, is coming back to life. Roberts lost her contractual job as a choreographer on cruise ships in March. It took her four months to receive unemployment benefits, forcing her to withdraw her savings. Now, four vans work part-time to pay the bills: a dance studio instructor, an Uber driver, an office building concierge, and a yoga studio facilities manager.
“It’s stressful and difficult,” she says.
Altogether, she gets 60% of her wages on the cruise ship. She piled up in $ 10,000 credit card debt and stopped paying her car. She tries to eat enough meals for a week of pottery dinner.
“My hope for the next year is that the cruise ship industry can return and provide recreational jobs,” she says. Even if it’s only a few trips back, “I hope to be in the front row of creative directors and artists who can troubleshoot.”
The housing market is booming In 2020 As people confined to their homes seek out larger spaces, usually in the suburbs, more millennials are starting to form families, and historically low mortgage rates lower monthly costs.
These trends will not disappear. Although many employees will return to offices after the vaccine is distributed, 90% of HR leaders plan to allow employees to work from home at least some of the time, according to a recent Gartner poll. Fucher and Millar both forecast to start building around 1.6 million housing units next year, the largest number since 2006.
Housing makes up only 3% to 6% of the economy but has huge multiplier effects. People who buy homes usually fill them with new furniture and appliances, for example.
“I think housing will help us weather the problems in the near term” in early 2021, says Faucher.
However, some parts of the economy may be weaker or mixed next year:
Commercial capital spending jumped 21.8% year-on-year in the third quarter and expenditures for equipment, a major category, rose to a record 66.6%, pushing the latter past the pre-pandemic level. The impetus for much of it has been in buying network equipment for the home business trend, and Faucher says it will continue.
He adds that the vaccine will also boost business confidence. Wells Fargo says business optimism will only grow stronger as President-elect Joe Biden eases trade uncertainty resulting from Trump’s tariff battles with China and other countries.
However, Millar believes that the expenses of working from home will diminish. With customer demand still below pre-crisis levels, companies have a lot of capacity to absorb stronger sales and therefore don’t need to buy new machines, computers or printers in factories, he says.
Meanwhile, retail and office construction will continue to be affected by e-commerce and work-from-home movements, Wells Fargo says.
Economists surveyed expect business investment to rise 4% in the next year, but Millar is only looking for a 1% increase.
Federal government spending should increase, in part due to the stimulus, but government and domestic spending will be weak again as the pandemic increases health care costs and reduces revenues. Millar expects general government spending to increase only 1.3%.
Growth abroad should pick up, boosting US exports. That should help narrow the trade deficit, says Wells Fargo, which is positive for growth.
Millar disagrees. As the US economy recovers, US consumers will buy more goods from abroad, widening the trade gap, he says. Economists surveyed expect the trade deficit to grow slightly.
Keep in mind that projections for 2021 have a higher than normal margin of error.
“There is a lot of uncertainty,” says Millar.