US ECONOMIC OUTLOOK

• Email
• Facebook
• LinkedIn
• Twitter
• Copy Link

November 13, 2020

Real economic growth will rise by 2.2 percent* (annualized rate) in 4Q20 while the US economy continues to wrestle with the COVID-19 pandemic. This deceleration in the recovery follows a contraction of 5.0 percent in 1Q20, a contraction of 31.4 percent in 2Q20 and a rebound of 33.1 percent in 3Q20. According to data from the Bureau of Economic Analysis (BEA), the US economy was 3.5 percent smaller in 3Q20 than it was prior to the pandemic in 4Q19.

While the economy has partially rebounded from a deep contraction in the first half of 2020, a variety of factors will determine how the recovery unfolds in 2021. Key variables include: a) the scale of the ongoing COVID-19 resurgence and any resulting lockdowns, b) the status of labor markets and household consumption, c) the size and timing of additional fiscal stimulus, d) the timing and availability of a COVID-19 vaccine, and e) the degree to which volatility in the US political transition affects consumer and business confidence. While there are many possible answers to these questions, The Conference Board has generated three potential recovery scenarios based on specific sets of assumptions.

Base Case Forecast:

Our base case forecast yields 4Q20 real GDP growth of 2.2 percent* (annualized rate), an annual contraction of 3.6 percent for 2020, and an annual expansion of 3.4 percent for 2021. We view this scenario as the most probable. It assumes: a) a moderate rise in COVID-19 over the winter and intermittent localized lockdowns, b) limited improvement in labor markets and consumption into early 2021, c) the implementation of limited fiscal stimulus in late 1Q21 / early 2Q21, d) the imminent approval of a vaccine, but no broad dissemination until 2Q21, and e) a non-disruptive political transition. These assumptions yield a lull in the recovery in 4Q20 and 1Q21, but a steady acceleration of economic activity that peaks in the summer months as consumers eagerly spend on services and goods that they had forgone in 2020.  In this scenario US monthly economic output returns to pre-pandemic levels in October 2021.

Upside Forecast:

Alternatively, we offer a second more optimistic scenario in which the economy grows by 3.8 percent (annualized rate) in 4Q20 yielding an annual contraction of 3.5 percent for 2020. For 2021 the recovery continues to accelerate resulting in an annual expansion of 6 percent. This scenario assumes: a) new COVID cases level off over the coming months and do not result in lockdowns, b) a strong recovery in labor markets and consumption, c) large fiscal stimulus implemented in 1Q21, d) vaccinations becoming widely available in early 2021, and e) no political disruptions over the coming months. These assumptions lead to US monthly economic output returning to pre-pandemic levels by April 2021.

Downside Forecast:

Finally, we offer a third more pessimistic scenario in which the US economy contracts in 4Q20 and 1Q21 before stabilizing later in 2021. This “double dip”** recession scenario yields an economic contraction of 3.8 percent in 2020 and zero growth in 2021. It assumes a) a large spike in COVID-19 and widespread lockdowns over the winter months, b) a deterioration in labor markets and spending, c) no additional fiscal stimulus in 2021, d) no vaccine in 2021, and e) a very bumpy political transition that disrupts business and consumer confidence. Under this scenario US monthly economic output does not recover to pre-pandemic levels until sometime in 2022.

In addition of the upside and downside risks outlined above, The Conference Board is also monitoring several others. Additional downside risks include rising evictions and foreclosures creating financial stress on banks, high stress on state and local government budgets, and an exacerbation of already high levels of inequality. Upside risks include: an acceleration in digital transformation that improves future productivity.

* The Conference Board is upgrading its forecast of 4Q20 real GDP growth from 1.5 percent (annualized rate) to 2.2 percent (annualized rate). This upgrade is due to stronger than expected October economic indicators, including recently published labor market data, and a reduction in the downside risks associated with contested US presidential elections potentially damaging consumer and business confidence.

** The National Bureau of Economic Research (NBER) does not define a special category of recession called a “double dip” recession. If there is another large contraction in economic activity over the coming months NBER will likely either classify this period as a continuation of the recession that it said began in February 2020 (link), or a separate recession that followed the first. At present the NBER has not announced that the first recession has ended.

The U.S. Economic Forecast

 

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