Larger Stimulus Leads to Big Upgrade to U.S. Growth Forecasts
(Bloomberg) -- With Covid-19 cases stabilizing and Democrats oiling the tracks to pass large parts of President Joe Biden’s $1.9 trillion stimulus plan -- even without Republican support -- economists are raising their 2021 economic growth forecasts.
Expectations for gross domestic product growth increased for the current three-month period and every subsequent quarter through mid-2022 in the latest survey of economists by Bloomberg News. Economic growth this year is estimated to be the strongest since 1984.
GDP is projected to rise an annualized 5.6% in the second quarter and 6.2% in the third -- both 1.6 percentage points stronger than January estimates, according to the median forecasts in a Feb. 5-10 survey of 76 economists.
“I think there’s going to be very strong growth in both the second and third quarters,” said Stephen Stanley, chief economist at Amherst Pierpont Securities LLC. He expects roughly $1.5 trillion in stimulus to be passed and for annualized GDP growth to jump to nearly 10% in the the April to June period. “I’m quite optimistic that the economy’s going to be able to reopen in the spring.”
The upgraded economic growth forecasts reflect expected increases in consumer spending and business investment. The pace of household spending is seen climbing at a 6.8% annualized pace in the July-September period amid a third round of stimulus checks, more widespread vaccinations and a rebound in demand for many services.
Yet, the pandemic continues to constrain the U.S. economic recovery, including by limiting how and where Americans can spend. Virus variants have renewed fears about Covid-19, but the nation is inching closer to widespread immunity as the pace of vaccinations picks up.
It’s unclear when the economy will be able to reopen more broadly, but when it does, economists expect high savings, pent-up demand and additional fiscal relief to bolster growth.
The latest survey also showed that inflation forecasts edged up, a reflection of the expectations for a large fiscal package and the snapback in demand. So-called base effects will bias second quarter year-over-year figures upward as new figures are compared to the depressed prints seen in the first three months of the health crisis last year.
And while the figures will appear to show a sharp acceleration in prices, survey respondents largely see the second quarter price pop as transient.
The personal consumption expenditures index -- a measure closely tracked by the Federal Reserve -- is forecast to jump to 2.2% in the second quarter on a year-over-year basis before falling back to or below the Fed’s 2% goal.
The core PCE price gauge, which excludes food and energy, is projected to rise to 2.1% in the second quarter before drifting back below 2% for the remainder of the year and into 2022.
Job growth, which started the year on weaker footing than originally expected, is forecast to pick up steam. The median estimate for payrolls growth edged higher not just for the April-to-June period but also in the following four quarters. The unemployment rate is projected to continue to fall this year.
Even so, it will likely take years for the labor market to fully recover. The January employment report showed more Americans dropped out of the workforce while there were still nearly twice as many unemployed Americans than before the pandemic.
©2021 Bloomberg L.P.