U.S.ECONOMIC OUTLOOK

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September 9, 2020

Economic growth has picked up in the third quarter following a sharp contraction of 31.7 percent (annualized rate) 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 have rebounded in July and August at a greater than expected rate.

While we expect US economic growth to continue to improve through the last month of the third quarter, concerns remain about the sustainability of the recovery beyond that. The pandemic-induced lockdown in March and April yielded a supply-side shock that is now transforming into a demand shock. High unemployment rates, low consumer confidence, and income disruptions are likely to limit consumer spending later in the year.

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

Base Case Forecast: Our base case forecast includes a third quarter GDP rebound of 32.9 percent. Given the severity of the economic contraction in the second quarter even a moderate improvement in economic activity over the summer yields a strong growth rate in the third quarter. While consumer spending has been the largest driver of growth over the summer, we expect it to stall as high levels of unemployment damage spending later in the year, leading to a much slower GDP expansion of only 1.3 percent in the a fourth quarter GDP expansion. This results in an annual growth rate of -3.8 percent in 2020 and puts the US economy on a modest recovery path of about 3.2 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 slower pace. Furthermore, in this scenario we adopt a more optimistic outlook on the impact of unemployment 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 -3.2 percent in 2020 and a strong rebound of 6.9 percent in 2021. In this scenario US monthly economic output recovers completely to pre-pandemic levels by January 2021.

The U.S. Economic Forecast

 

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