U.S. Growth Expectations Keep Mounting With Bigger Tailwind
(Bloomberg) -- Economists are once again ratcheting up their U.S. growth forecasts as a fresh injection of government aid, rising vaccination rates and looser business restrictions combine to provide a bigger tailwind for economic activity.
Expectations for gross domestic product growth surged more than a percentage point to an annualized pace of 8.1% in the second quarter, according to the latest monthly survey of economists by Bloomberg.
Consumer spending forecasts were raised for each quarter of the year, reflecting an outpouring of pent-up demand that is putting the nation on track for its strongest economic growth since 1984.
The unemployment rate -- currently at 6% -- is also expected to fall below 5% in the final three months of the year, according to the median forecast in an April 1-8 survey of 71 economists. It took over six years for the jobless rate to reach that milestone in the wake of the 2007-09 recession.
“We’ve been very optimistic this year,” said Michael Gapen, chief U.S. economist at Barclays Plc. He increased his second-quarter GDP growth forecast to 11.5% and also increased his estimates for the back half of the year to reflect the $1.9 trillion relief package signed by President Joe Biden in mid-March. The final package was larger than the bank originally anticipated.
“We’re expecting a rapid acceleration in activity in the second and third quarter on the combination of speed of vaccinations, the efficacy of those vaccinations, fiscal support in the pipeline,” and the willingness of households to spend those accumulated savings to some extent, he said.
An average of 3 million Americans are getting vaccinated each day, and states are increasingly rolling back business restrictions. California, the most populous state and also the first state to impose severe lockdown restrictions last year, is allowing most establishments to partially or fully reopen this month.
At the same time, a slew of economic data -- including the March jobs report -- has come in much better than economists expected.
Many Americans’ wallets have also been padded by two rounds of direct relief payments -- totaling $2,000 -- since the start of the year while the jobless have received supplemental unemployment insurance benefits to help offset income losses.
Consumer spending is forecast to surge an annualized 7.5% in the first three months of the year, up from 5.1% in the March survey. The outsize pace of growth in outlays won’t end there. Spending is seen accelerating at an 8.4% pace in the current quarter.
Inflation metrics are also expected to briefly pop in the second quarter, in large part due to a temporary phenomenon known as base effects. A key inflation gauge monitored by the Federal Reserve, known as the personal consumption expenditures price index, is forecast to rise 2.6% from the year prior -- above the Fed’s 2% goal -- as the index is compared to the very low readings seen at the start of the pandemic.
The so-called “core” measure, which strips out food and energy, is expected to rise to 2.2% in the same period before slowing to, or slightly below, the 2% threshold through the third quarter of 2022.
Whether the anticipated wave in pent-up demand, paired with almost $5 trillion in large government relief bills since the start of the pandemic, leads to a substantial and sustained pick up in inflation is still the subject of intense debate.
Economists in the latest survey also grew more upbeat about business spending. They raised their second-quarter forecast for private investment to an annualized 9.4% increase and for the following quarter, they project an 8.7% growth pace.
©2021 Bloomberg L.P.