An employee uses a hoist to assemble a car seat at the Lear Corp. manufacturing facility. in Hammond, Indiana.
Jim Young | Bloomberg | Getty Images
According to a government forecast released Monday, economic growth in the US will “recover quickly” and the labor market will return to full speed faster than expected thanks to the introduction of vaccines and a barrage of legislation that came into effect in 2020.
Gross domestic product, or GDP, is expected to return to its pre-pandemic magnitude by mid-2021, and the workforce is expected to recover to pre-pandemic levels by 2022, the impartial Congressional Budget Office said.
Importantly, the CBO said its brighter projections don’t presume any new stimulus, including President Joe Biden’s $ 1.9 trillion plan.
This is what the CBO sees for the US economy:
- Real GDP will grow by 3.7% in 2021
- GDP growth to average 2.6% over the next five years
- The unemployment rate will fall to 5.3% in 2021 and further to 4% between 2024 and 2025
- Inflation will rise to 2% after 2023
- The Federal Reserve will begin raising the Federal Funds rate in mid-2024
- Improved economic outlook to 2025
These projections are a stronger outlook than the budget bureau’s earlier forecast for the summer of 2020, when the CBO said it expected the coronavirus to weaken about $ 7.9 trillion in economic activity over the next decade.
The CBO said it had revised its estimates “because the downturn was not as severe as expected and because the initial phase of the recovery came earlier and was stronger than expected”. CBO employees added that companies were better able to adapt to government-imposed restrictions, but that certain industries – such as hospitality and food services – are still struggling.
Regardless, the rapid expansion of the CBO projects for the next five years is expected to diminish over the next five years amid a price increase and a more normal level of long-term consumer spending.
Between 2026 and 2031, the CBO expects real GDP growth of around 1.6% per year, and the Fed allows inflation to exceed its 2% target.
The agency has also analyzed the recent $ 900 billion stimulus package that Congress passed in December. CBO estimates that the pandemic-related provisions in that legislation will add $ 774 billion to the deficit in fiscal year 2021 and $ 98 billion by 2022.
Those provisions will increase the level of real GDP by an average of 1.5% in the calendar years 2021 and 2022, CBO estimates.
The CBO’s outlook comes at a precarious time for the U.S. economy, as the coronavirus prompts many states to enforce corporate closures and other social renunciation measures to help slow the spread of the disease.
Economists say the economy went through a brief but sharp recession in 2020, when the unemployment rate peaked to 14.8% in April and growth contracted 31.4% in the second quarter. According to data from Johns Hopkins University, Covid-19 killed more than 440,000 Americans.
While the economy has come a long way since then, both Treasury Secretary Janet Yellen and Fed Chairman Jerome Powell have warned in recent months that Congress may need to provide additional incentives to support households and businesses until the Covid-19 vaccine becomes more widely available is.
According to the last reading, the US employment rate was 6.7% in December; The Department of Labor will release its next look at the employment situation in the US on Friday.
Biden has lobbied for months for a new round of stimulus alongside the $ 2.2 trillion CARES Act Congress passed last March and the $ 900 billion package passed in December.
Earlier this month, the new government launched a $ 1.9 trillion plan that includes $ 1,400 direct payments, federal unemployment benefits from $ 400 a week through September, and an increase in the federal minimum wage to $ 15 an hour.
Moderate Republicans in the Senate, as well as conservative Democrat Senator Joe Manchin from West Virginia, have opposed the hefty price tag of Biden’s plan. Ten Republican senators submitted a $ 600 billion counter-offer to the government on Sunday.