US ECONOMIC OUTLOOK

• Email
• Facebook
• LinkedIn
• Twitter
• Copy Link

May 7, 2021

The Conference Board forecasts that US Real GDP growth will rise to 8.6 percent (annualized rate) in Q2 2021 and 6.4 percent (year-over-year) in 2021* Following solid economic growth in Q1 2021 we anticipate further acceleration in growth in Q2 2021 and Q3 2021. The primary driver of this rapid expansion will be a surge in consumer spending as the economy fully reopens. High and increasing vaccination rates and low new COVID-19 case numbers indicate that the reopening process may be complete for much of the country by the end of the summer. Following a robust recovery in 2021, we forecast economic growth of 3.7 percent (year-over-year) in 2022 and 2.9 percent (year-over-year) in 2023.

The rapid acceleration in growth has led to heightened concerns about rising inflation. Presently, we forecast that inflation will peak in Q4 2021 with the price level for personal consumption expenditures (PCE) – the US Federal Reserve’s preferred inflation metric – rising to 3.0 percent (year-over-year) and Core PCE inflation rising to 2.4 percent (year-over-year). It is unclear whether the Fed would tolerate inflation rising to these rates for an extended period of time. However, inflation pressure should abate as US economic growth returns to a more natural rate in 2022 and 2023. 

Base Case Forecast 

As noted above, our base case forecast yields Q2 2021 real GDP growth of 8.6 percent (annualized rate), and an annual expansion of 6.4 percent (year-over-year) in 2021.* Following this robust recovery, we forecast economic growth of 3.7 percent (year-over-year) in 2022 and 2.9 percent (year-over-year) in 2023. We view this scenario as the most probable. It assumes that: a) new cases of COVID-19 continue to decline over the coming months and most social distancing restrictions are retracted by the end of the summer; b) COVID-19 vaccinations become broadly available in Q2 2021, and are available on-demand by early Q3 2021; and c) continued improvements in labor markets and consumption in Q2 2021 and Q3 2021.

Upside Forecast

Alternatively, a more optimistic scenario shows that the economy could grow 7.4 percent (year-over-year) in 2021. This scenario assumes: a) new cases of COVID-19 fall dramatically in May and June and most social distancing policies are eliminated before the summer; b) vaccines are available on-demand in Q2 2021; c) the new Administrations $2.3 trillion infrastructure and tax plan is passed by Q3 2021 and begins to hit the economy before the end of 2021; and d) faster than expected improvements in labor markets and consumption in Q2 2021.

Downside Forecast

Finally, a more pessimistic scenario could result in lower growth of about 5.5 percent (year-over-year) in 2021. This scenario assumes a) new cases of COVID-19 rise as vaccine-resistant mutations result in an additional wave in Q4 2021; b) the production and distribution of vaccines is disrupted while mutations render them ineffective; c) the Federal Reserve signals that it will begin to raise rates earlier than anticipated; d) unemployment deteriorates and the consumption recovery stagnates; and e) a large correction in equity markets hurts consumer and business confidence.

* The Conference Board is upgrading its forecast of 2021 real GDP growth from 6.0 percent (year-over-year) to 6.4 percent (year-over-year). This upgrade is due to stronger than expected economic growth in Q1 2021 associated with the rapid deployment of a $1.9 trillion fiscal support package.

The US Economic Forecast