US ECONOMIC OUTLOOK

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October 14, 2020

Economic growth will rise to 34.6 percent (annualized rate) in the third quarter following a sharp contraction in the second quarter. While bringing US economic output back to pre-pandemic levels will require continued growth, there has been some progress in driving economic activity higher over the summer despite a sharp uptick in new COVID-19 cases. Indeed, various economic indicators that we track rebounded in July and August at a greater than expected rate.

While many of these economic indicators are continuing to improve, the pace of the rebound is now slowing. We expect US economic growth to continue to improve through September, but are concerned about the sustainability of the recovery beyond that. The recovery in the labor market appears to be stagnating and the rebound in consumer spending is slowing despite continued improvements in consumer confidence. Furthermore, US personal savings rates remain about twice as high as they were in late 2019. These key demand-side metrics need to improve further to pull the US economy out of recession.

Looking further ahead, The Conference Board currently has three recovery scenarios for the US economy

Base Case Forecast:

Our base case forecast includes a third quarter GDP rebound of 34.6 percent. Given the severity of the economic contraction in the second quarter even a moderate improvement in economic activity over the summer will yield a strong growth rate in the third quarter. While consumer spending was the largest driver of growth over the summer, we expect it to stall as high levels of unemployment and elevated savings rates damage spending later in the year, leading to a much slower GDP expansion of only 1.5 percent in the fourth quarter. This results in an annual growth rate of -3.5 percent in 2020 and puts the US economy on a recovery path of about 3.5 percent growth in 2021.

Upside Forecast:

Alternatively, we offer a second more optimistic scenario in which the growth momentum seen between May and August is sustained for the remainder of the year, albeit at a moderating pace. Furthermore, in this scenario we adopt a more optimistic outlook on the impact of unemployment and savings on US consumption in the fourth quarter - resulting in a ‘”swoosh”-shaped recovery for the US economy. This upside forecast results in an annual growth rate of -2.9 percent in 2020 and a strong rebound of 7.1 percent in 2021. In this scenario US monthly economic output recovers completely to pre-pandemic levels by January 2021.

Downside Forecast:

Finally, we offer a third more pessimistic scenario in which the US economy contracts at the end of 2020 before stabilizing in early 2021. In this “double dip” scenario the recovery seen earlier this year falters due to (1) a large resurgence in COVID-19 cases in the coming months, (2) no additional government stimulus until at least Q1 2021, (3) delays in the development and deployment of a Coronavirus vaccine, and (4) a contested US presidential election that damages US consumer and business confidence. 

The U.S. Economic Forecast

 

THE CONFERENCE BOARD BASE CASE ECONOMIC OUTLOOK, 2019-2020-2021
Percentage Change, Seasonally Adjusted Annual Rates