US ECONOMIC OUTLOOK

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February 10, 2021

The Conference Board forecasts that US Real GDP growth will rise by 2.0 percent (annualized rate) in Q1 21 and 4.4 percent (year-over-year) in 2021.* Following a lull in the economic recovery in recent months, we expect the pace of the rebound to reaccelerate as new COVID-19 infection rates decline, the vaccination program expands, and the prospects of another large fiscal support program improve. We expect the recovery to continue into next year and forecast growth of 3.1 percent (year-over-year) in 2022.

While the economy has already partially rebounded from the deep contraction in the first half of 2020, a variety of factors will determine the way forward. Key variables include: a) the spread of the virus itself, b) the deployment and effectiveness of COVID-19 vaccines, c) the size and timing of fiscal support, and d) the status of labor markets and household consumption. While there are many possible outcomes for these factors, The Conference Board has generated three potential recovery scenarios based on specific sets of assumptions.

Base Case Forecast

As noted above, our base case forecast yields Q1 21 real GDP growth of 2.0 percent (annualized rate), and an annual expansion of 4.4 percent (year-over-year) in 2021.* The recovery will likely continue into next year and yield an annual growth rate of 3.1 percent (year-over-year) in 2022. We view this scenario as the most probable. It assumes: a) new cases of COVID-19 peak in early Q1 21 and no widespread lockdowns are implemented; b) COVID-19 vaccinations rise in Q1 21, are broadly available in Q2 21, and are universally available in Q3 21; c) $1.5 trillion in additional fiscal support is deployed in Q2 21, and d) modest improvements in labor markets and consumption in Q1 21 precede a sharp rebound in Q2 21 and Q3 21. In this scenario, US monthly economic output returns to prepandemic levels in July 2021.

Upside Forecast

Alternatively, we offer a second more optimistic scenario in which the economy grows 6.4 percent (year-over-year) in 2021. This scenario assumes: a) new COVID-19 cases fall dramatically in late Q1 21 and social distancing policies loosen; b) vaccines are broadly available by the end of Q1 21 and are universally available in Q2 21; c) $1.9 trillion in additional fiscal support is deployed in Q2 21; and d) meaningful improvements in unemployment result in a rebound in consumption in Q1 21. In this scenario, US monthly economic output returns to prepandemic levels in April 2021.

Downside Forecast

Finally, we offer a third more pessimistic scenario in which the US economy grows by just 1.0 percent (year-over-year) in 2021. This scenario assumes a) new cases of COVID-19 rise in Q1 21 and vaccine-resistant mutations result in a "third wave" by Q4 21; b) distribution of vaccines is prolonged and mutations render it ineffective; c) only $600 billion in additional stimulus is deployed in Q2 21; d) unemployment deteriorates and consumption contracts in H1 21 and again in Q4 21; and e) a large correction in equity markets hurts consumer and business confidence. In this scenario, US monthly economic output does not recover to prepandemic levels until sometime in 2022.

* The Conference Board is upgrading its forecast of Q2 21 real GDP growth from 3.6 percent (annualized rate) to 4.7 percent (annualized rate). This upgrade is due our expectation that the US government approves a $1.5 trillion in fiscal support in March. Subsequent quarters are also positively impacted by the package.

The US Economic Forecast