At last, the U.S. is seeing light at the end of the tunnel regarding the Covid-19 Pandemic! Vaccinations are available in almost every state and over half of the U.S. population is vaccinated. Many states have now lifted mask restrictions in public areas. Yes, it seems that America is beginning to return to social normality. But what about the U.S. economy? Will the U.S. economy be able to return to economic stability and normality?? The short response to these questions is YES!
Many Economists and Financial Coaches (including myself) have forecasted that US Real GDP growth will rise to 9.0 percent (annualized rate) in Q2 2021 and 6.6 percent in overall 2021. Following solid economic growth in Q1 2021, I expect the recovery to continue through the remainder the 2021. Looking further ahead, I forecast an economic growth of 3.5 percent (year-over-year) in 2022 and approximately 2.5 percent (year-over-year) in 2023.
As the businesses reopen and consumer confidence continues to rise (especially in the summer months) we expect consumer spending to help drive the recovery forward – especially spending on in-person services. These outlays will be underpinned by a recovering labor market and a significant savings derived from three rounds of fiscal stimulus checks dispersed over the past year. Furthermore, the launch of a new wave of monthly government checks to families with children, worth more than $100 billion, is set to launch on July 15th. This program should further strengthen spending in the second half of the year.
The rapid acceleration in growth seen in early 2021 has led to rising prices and heightened concerns about inflation. Currently, I believe that inflation will peak in Q2 2021 with the price level for personal consumption expenditures (PCE) – the US Federal Reserve’s preferred inflation metric – rising to 3.5 percent (year-over-year) and Core PCE inflation rising to 3.0 percent (year-over-year). Inflation will likely remain elevated for the remainder of 2021, but then begin to moderate. It is unclear whether or not the Fed will tolerate these price increases for an extended period of time, and sooner than expected monetary tightening represents a downside risk to the forecast described in this article.
Finally, it’s possible that another large wave of government spending is on the horizon. The White House is currently negotiating a $2 trillion infrastructure and tax plan with Senate Republicans, but a bipartisan compromise does not seem likely to occur yet. Alternatively, the Administration may be able to pass these programs without Republican support via a legislative mechanism known as reconciliation. This strategy would require all Democrats in the Senate to support the programs, however, which is not assured. Given the uncertainty surrounding this political issue, it is not currently factored it into my forecast. However, even if the bill is passed this week, these programs would not actually begin to impact the US economy until 2022.
For now, the outlook of the economy is very good. No recession is expected for this year or the first quarter of 2022. The vaccinations and business reopening will set the U.S. economy in a great position as we move in Q3 of the 2021. Expect further positive economic growth for the remainder of the year. Have a great summer and please remember to be safe.
Jeremy G. Preston,
E.I. Enterprise LLC
Founder & CEO