The Conference Board forecasts that US Real GDP growth will slow to 5.5 percent (annualized rate) in Q3 2021, vs. 6.6 percent growth in Q2 2021, and that 2021 annual growth will come in at 5.9 percent (year-over-year). This forecast is a downgrade from our August outlook and incorporates the larger-than-expected impact that the COVID-19 Delta variant has had on the US economy. Looking further ahead, we forecast that the US economy will grow by 3.8 percent (year-over-year) in 2022 and 3.0 percent (year-over-year) in 2023.

Consumer spending will continue to be a key driver of growth in H2 2021, but a recent decline in consumer confidence related to a resurgence in the pandemic will likely reduce the growth contribution from consumption. Additionally, the critical pivot back to consumer spending on in-person services will be delayed until concerns about the Delta variant are allayed (likely in Q4 2021).  

Bottlenecks in global supply chains made it difficult for businesses to keep up with elevated demand for many goods earlier this year, resulting in a sharp contraction in private inventories. We expect this trend to reverse over the coming months as the December holiday period approaches, and forecast a rebound in private inventories. However, the pace of restocking will be slower than previously anticipated as the Delta variant has hindered manufacturing and shipping activity in key economies around the world.

At the same time, concerns about inflation risks remain high as businesses and consumers continue to grapple with the impact of the pandemic.  Year-over-year inflation rates will likely continue to remain high through the end of 2021 and into early 2022 due to sizeable base effects. However, the intensity and momentum of month-over-month price increases will likely continue to moderate over the coming months. This suggests that higher inflation expectations might not become embedded in the outlook despite the negative impact on purchasing power compared to last year. We recommend paying close attention to month-over-month Core CPI and Core PCE Price Index data for a clearer picture of the ongoing inflation story.

Finally, the current economic environment may delay any tightening action by the Federal Reserve. A moderation in growth coupled with a more prolonged labor market recovery and ebbing inflationary pressures may extend the accommodative monetary support environment. At present, the consensus forecast for Fed Funds tightening is Q2 2023 but tapering will likely come relatively soon.

THE CONFERENCE BOARD US ECONOMIC OUTLOOK, 2020-2021-2022-2023
Percentage Change, Seasonally Adjusted Annual Rates

*Actual data

Source: The Conference Board