Demand is high right now, so that also puts downward pressure on yields. The promise of a vaccine raises the question of how consumers will behave once the coronavirus is no longer a threat. The disease remains a potent problem in the very short run. When people first reacted to the pandemic in February and March by canceling travel plans and restaurant reservations, most expected the disruption to be short-lived. The Fed is also working on keeping long-term rates low in an effort to make borrowing money cheaper, and in turn encourage consumer and business spending. First, many businesses will need to spend on safety equipment that will neither improve productivity nor add to profits. Efforts to reshore parts of the supply chain, and to build more robust manufacturing systems, will likely mean that jobs will become available in manufacturing and related industries. The Biden plan to ensure the future is ‘made in all of America’ by all of America’s workers, McConnell says $2T bill is ‘emergency relief’ and not a ‘stimulus’, COVID-19: Urgent actions needed to better ensure an effective federal response, Trump administration leaves states to grapple with how to distribute scarce vaccines, These ‘little land mines’ could prevent a summertime boom, Estimated macroeconomic impacts of the American Recovery and Reinvestment Act, Funding, credit, liquidity, and loan facilities, Three themes likely to drive 2021 outlook: Rehabilitation, rectification, and reform, Federal Reserve monetary policy in the time of COVID-19. Fast return to the starting line (25%): A significant relief bill keeps demand growing in the first half of 2021, and then pent-up demand creates a large burst of spending starting in mid-2021 as vaccines are widely deployed. Any additional economic recovery is hesitant, and GDP growth remains relatively slow. And the need for state and local governments to cut spending creates an additional drag on GDP. Analysts also have taken a hard look at interest rates, oil and gas prices, jobs, and the impact of climate change. The battle between supply and demand will likely continue through the forecast horizon. These include banks' prime rate, the Libor, most adjustable-rate loans, and credit card rates. Pandemic and election could add noise to short-term outlook, but medium-term prospects improving. Federal Reserve Board. Just as the “China price” held inflation in check for years, an attempt to avoid being dependent on China might create inflation pressures in the later years of our forecast horizon. The Fed’s prompt and strong actions kept financial markets liquid and operating, preventing that additional level of pain. But companies will likely begin to reduce their dependence on foreign suppliers, or attempt to have a portfolio of suppliers rather than a single source, even if the single source is the cheapest. Accessed Dec. 22, 2020. Spending on durable goods has been particularly strong, rising 13% from January through March. See: “Funding, credit, liquidity, and loan facilities,” November 20, 2020. Slowing population growth means that the demand for housing will grow relatively slowly after the initial jump in housing construction as the pandemic impact subsides in the baseline. By then, the cheap sources of oil will have been exhausted, making crude oil production more expensive. Extended unemployment benefits, and unemployment benefits for gig workers, will stop in January. And the economy is clearly slowing as of late November. These are the very people who are less likely to have health insurance—especially after layoffs—and more likely to have health conditions that complicate recovery from infection. March 2020 Update: While the Corona Virus scare is punishing China's economy, the US seems to caught an economic flu, driven by media reports. However, GDP … World Bank Predicts Strong GDP Growth In 2021 Won’t Overcome Weak 2020. And retirement remains a significant issue: Even before the crisis, fewer than four in 10 nonretired adults thought their retirement was on track, with one-quarter of nonretired adults saying they have no retirement savings.6 Low interest rates will worsen Americans’ preparation for retirement, while the stock market boom will have little impact on the balance sheets of most Americans.7. At the same time, we are lowering our 2021 growth forecast … It would be a bad idea to wait too long once those conditions lift. Richard Drew/AP. U.S. Energy Information Administration. Given these offsetting factors, the baseline forecast calls for inflation to continue at about 2.0% over the forecast horizon. already exists in Saved items. This limits the possibility of recovery and erodes trust in institutions; even as treatment improves and businesses again reopen, consumers prefer to stay at home in safety rather than take what they have come to believe are unwarranted risks. Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee ("DTTL"), its network of member firms, and their related entities. It is estimated to then rebound up to a 4.2% growth rate in 2021, and slow to 3.2% in 2022, and 2.4% in 2023. Consumer spending has been surprisingly strong over the past few months. Global exports grew from 13% of global GDP in 1970 to 34% in 2012, but globalization then began to stall, the share of exports in global GDP started to fall, and opponents of freer trade have taken power in key countries (most notably the United States and the United Kingdom), suggesting that the policies that fostered globalization may change in the future. Goldman Sachs on Friday dramatically cut its US economic forecast, saying it now expects GDP to decline by 24% in the second quarter of 2020 … But there is a limit to what the Fed can do. And since sales of these assets will precede hiking the Fed funds rate, we have assumed that the funds rate remains near zero over the five-year forecast horizon. It is estimated to then rebound up to a 4.2% growth rate in 2021, and slow to 3.2% in 2022, and 2.4% in 2023., The FOMC estimates that the unemployment rate will be 6.7% for the year of 2020. Relief spending thus far has ballooned the budget deficit. Discover Deloitte and learn more about our people and culture. The traditional concerns about the Fed buying private assets have gone out the window, and the Fed has created methods for direct lending from US states, counties, and cities (Municipal Liquidity Facility), small and medium-sized businesses (Main Street Lending Program), and purchases of corporate bonds (Primary and Secondary Corporate Credit Facilities).17 This is unprecedented: The Fed has traditionally avoided lending directly, avoiding the complications of dealing with nonfinancial firms. That’s a massive hole. Federal Reserves Issues FOMC Statement, March 15, 2020. Reengineering supply chains will inevitably mean a rise in overall costs. View in article, Board of Governors of the Federal Reserve System, Report on the economic well-being of US households in 2019, May 2020, p. 49. Positions in health care and social assistance are projected to grow to 3.1 million jobs over the course of the decade, reaching 23.5 million come 2029. Computer and math occupations, and those based on alternative energy production, will also grow rapidly. Given the stronger pace of the recovery so far in the US, we are actually raising our 2020 forecast, to -4.2% from -4.8% previously. This poses another problem: Even before a vaccine is widely deployed, consumers may exhaust their demand for durable goods that substitute for services spending. This economic forecast updates the interim forecast that CBO published in May, which focused on 2020 and 2021. US taxation of corporations and their shareholders, New York University School of Law, October 27, 2020. Central bank paints bleak outlook for economy in 2020 and plans to keep rates close to zero, but forecasts 5% growth next year and 3.5% in 2022 Consider, for example, the fact that large airlines remain solvent and ready to expand service when necessary—if that were not the case, recreating airline services once the pandemic is over would be considerably more expensive and time-consuming. Whether or not the specific vaccines in the upbeat November headlines prove to be winners, the likelihood of an effective vaccine being deployed seems to have increased sharply. Federal Reserve Press Release, Sept. 16, 2020, Credit and Liquidity Programs and the Balance Sheet, Federal Reserve Announces Extensive New Measures to Support the Economy, The Impact of Higher Temperatures on Economic Growth, Facts and Statistics: Global Catastrophes. The economy, then, has avoided the shutdown of large companies for financial reasons, and if that remains the case, economic activity can pick up quickly. The housing sector has outperformed the broader economy in the wake of the pandemic. There was a cost, of course: the Fed’s intervention in many different markets. Accessed Dec. 22, 2020. We view this scenario as the most probable. Accessed Dec. 22, 2020. The most striking examples of this are the US withdrawal from cooperation in the World Health Organization, and the unilateral decisions of both China and Russia to deploy their own vaccines before completing testing. Goldman Sachs Group Inc. economists have revised down their estimates for the 2020 US economic growth rate to -4.6% from the previous forecast of -4.4 US Forecast Update: US GDP to contract 3.5% in 2020. By June 2020, its balance sheet had grown to a record of $7.2 trillion, and six months later by mid-December, that number had reached $7.3 trillion.. The Consumer Price Index (CPI) for food at home rose 4% in the second quarter as supply chain problems caused spot shortages for consumers—with some reversal afterwards as things settled down. And unlike in previous recessions, the Fed has prevented significant financial damage to the economy. The unavailability of either treatment or an effective vaccine means that the cycle of restart attempts and subsequent reclosing continues. "Federal Reserve Announces Extensive New Measures to Support the Economy." Base Case Forecast: Our base case forecast yields 4Q20 real GDP growth of 2.8 percent* (annualized rate), an annual contraction of 3.6 percent for 2020, and an annual expansion of 3.6 percent for 2021. This suggests that households will maintain a higher level of savings, and that consumer services spending will recover slowly. Forecast is based on an assessment of the economic climate in individual countries and the world economy, using a combination of model-based analyses and expert judgement. Accessed Dec. 22, 2020. Unless otherwise noted, all data supplied by Haver Analytics, which compiles statistics from the US Bureau of Labor Statistics, the Bureau of Economic Analysis, and other databases. Dr. Bachman is a senior manager with Deloitte Services LP, in charge of US economic forecasting for Deloitte’s Eminence and Strategy functions. If the economy does indeed need that boost, the stimulus package’s composition will dictate its effectiveness. Accessed Dec. 22, 2020. Full recovery will therefore start from a very different point than anybody expected last spring. That might be a hard pill for workers, businesses, and policymakers to swallow. View in article. The forecast assumes that business spending will remain relatively soft until the overall economy begins to steadily recover in mid-2021. Moreover, an aging demographic means that more than a quarter of the nation’s existing owner-occupied homes are likely to become available over the next 20 years as the current owners either pass away or vacate their homes.9. According to the data, the average Brent oil price could increase to $183 per barrel in 2050, adjusted for inflation to 2019 dollars. 1 And employment snapped back somewhat in May and June, especially in accommodation and food services, the hardest-hit industry in the pandemic. Until the caseload begins to fall, both official restrictions and people’s fear of the disease will put a lid on economic activity. The growth rate of real gross domestic product (GDP) measured by the U.S. Bureau of Economic Analysis (BEA) is a key metric of the pace of economic activity. The BLS 2019 through 2029 projections do not include impacts of the coronavirus pandemic and response efforts, as the historical data was finalized in spring 2020. Many businesses remain financially healthy and able to borrow and spend to expand capacity when demand picks up. Granted, significant hurdles remain, including many Americans’ reluctance to be vaccinated,4 keeping the possibility of the long slog scenario at a significant level despite the positive vaccine news. We won’t know until recovery really gets underway. The pandemic is expected to erase at least five years of per capita income gains in about a fifth of the … Please see www.deloitte.com/about to learn more about our global network of member firms. This inevitably raises the question of whether the US government can continue to borrow at such a pace. But the US economic forecast in 2020 and … It is similar to the May forecast for those two years, except that the projection of growth in the second half of 2020 has been revised downward. National health care expenditures will increase by 5.4% … View in article, Alexander Bolton, “McConnell says $2T bill is ‘emergency relief’ and not a ‘stimulus’,” Hill, March 25, 2020. A strong comeback in 2021 is needed to help the global economy heal from the coronavirus pandemic. However, this is significantly weaker than the latest consensus forecast of -3.6%. Percent. “National Income and Product Accounts Tables: Table 1.1.1. "Labor Force Statistics from the Current Population Survey." The supply shock of the pandemic has clearly raised certain prices. View in article, Nichols, Mitchell, and Lindner, Consequences of long-term unemployment. What Is the Current Fed Interest Rate and Why Does It Change? One important question is whether businesses will rebuild their supply chains to create more resilience in the face of shocks such as the pandemic and the change in US trade policy. Almost a year has passed, with people having to reset expectations and plans every month or two. US Economy In Trouble? The number of new daily COVID-19 cases in the United States neared 150,000 by the end of November—with almost 100,000 people hospitalized—prompting authorities in a number of states to call for reinstating restrictions on, for example, restaurant and bar operations. E CONOMISTS cannot revise down their forecasts of GDP growth for the effects of the coronavirus pandemic fast enough. Such labor market adjustments are usually slow to occur, one reason why we expect the overall economic recovery in the baseline to be relatively slow. The US economy is expected to shrink by 4.3% in 2020 before expanding by 3.1% in 2021. And we expect it to overtake the US a full five years earlier than we did a year ago. Bureau of Labor Statistics. Economic activity in Europe and Central Asia (ECA) is estimated to have contracted 2.9 percent in 2020 in the wake of disruptions related to the COVID-19 pandemic. Taking action against systemic bias, racism, and unequal treatment, Key opportunities, trends, and challenges, Go straight to smart with daily updates on your mobile device, See what's happening this week and the impact on your business. View in article, Issi Romem, “The silver tsunami: Which areas will be flooded with homes once Boomers start leaving them?,” Zillow, November 22, 2019. The U.S. economy is improving after the destruction caused by the COVID-19 pandemic. The CBO expects federal debt held by the public to equal over 100% of GDP by the end of FY2021. But the International Monetary Fund is downgrading its forecasts for next year, … The World Bank’s growth forecast for 2021 would be indicative of a slowdown … We do assume a slow rise in long-term interest rates as financial markets “normalize.” But that leaves the 10-year Treasury yield at 2.5% by 2025. Others may experience this for the first time. Forecast is based on an assessment of the economic climate in individual countries and the world economy, using a combination of model-based analyses and expert judgement. Percent Change From Preceding Period in Real Gross Domestic Product, Advance Retail Sales: Retail and Food Services, Total, Labor Force Statistics from the Current Population Survey, News Release: Unemployment Insurance Weekly Claims, Dec. 16, 2020: FOMC Projections Materials, Accessible Version, Projections Overview and Highlights, 2019 to 2029. More than 20 million people are receiving unemployment insurance, and many will lose their incomes if the expansion of unemployment benefits does not continue. That crisis may be many years away, and current conditions argue for waiting. The relatively small federal relief bill that is the most probable policy intervention will likely provide too little help, and in the baseline the damage done to business and labor markets takes years to fix. These permanent changes may also leave capital stranded—invested, for example, in a surplus of aircraft if travel does not recover. In fact, consumption recovered much faster than our forecast assumed—May’s consumer spending was up 8.1%. The fed funds rate controls short-term interest rates. Accessed Dec. 22, 2020. In the long-term, the United States GDP is projected to trend around 21500.00 USD Billion in 2021 and 22790.00 USD Billion in 2022, according to our econometric models. Second-quarter GDP … "News Release: Unemployment Insurance Weekly Claims." It restarted its quantitative easing (QE) program, and soon expanded QE purchases to an unlimited amount. Once we are at the stage of deploying the vaccine, policymakers will need to determine whether further stimulus is necessary. Long slog (10%): COVID-19 cases continue to climb through the winter, and states are forced to attempt to again limit economic activity. Get the Deloitte Insights app. China will overtake the US to become the world's largest economy by 2028, five years earlier than previously forecast, a report says. How to entice people to switch to manufacturing from, say, food service, and accommodation? Also see: Kathy Frankovic, “Half the public are willing to get vaccinated against COVID-19, the highest level yet,” YouGov, November 30, 2020. See Kiplinger's latest forecast for gross domestic product. Goldman Sachs upgrades third-quarter US GDP forecast to 35% after stronger-than-expected August jobs report. But this is likely several years away. The forecast also does not factor in the pandemic's impact on oil prices., The Federal Reserve is concerned about how climate change will affect the economy. The U.S. Energy Information Administration (EIA) provides an outlook on oil and gas prices from 2020 to 2050. Bureau of Economic Analysis. Much of business investment was interrupted, like everything else, by the closing of the economy to slow the pandemic’s spread. The annual unemployment rate, which was projected to average … Accessed Dec. 22, 2020. Those practices will also raise prices—and reduce productivity. Bureau of Labor Statistics. Much planning, and government policy, was designed to bridge this relatively short period. American companies will continue to source from China in the coming years. Before the outbreak of the novel coronavirus, the US economy look… Our baseline continues to show very slow growth until mid-2021, with the distinct possibility of a negative first quarter in 2021. But the damage to the economy, from shutdowns and withheld aid, has already been done. State governments will need financial help for managing COVID-19–related spending and, especially, for deploying vaccines as they become available. Certain services may not be available to attest clients under the rules and regulations of public accounting. Constant price estimates of GDP are obtained by expressing values of all goods and services produced in a given year, expressed in terms of a base period. Since state governments cannot run deficits, without federal aid they may need to accelerate the budget-balancing layoffs and program shutdowns they have already begun. "Labor Force Statistics from the Current Population Survey." View in article, Austin Nichols, Josh Mitchell, and Stephan Lindner, Consequences of long-term unemployment, Urban Institute, 2013. Apart from the fact that buyers and sellers have found ways to navigate the restrictions of the pandemic, a few factors have combined to boost housing demand.8 These include the continued strong economic positions of high-wage remote workers, historically low mortgage rates, and more millennials moving into prime home-buying age. To be clear: The economy remains in troubled territory, fresh optimism notwithstanding. The answer is that it can—until investors lose confidence. On the other hand, the demand shock has begun to drive down some prices. Promoting more efficient labor markets might help to speed the recovery—but it would mean admitting that the prepandemic economy will never return. But the US economic forecast in 2020 and for the next 5 years, is bolstered by strong investment, low taxes, strong consumer wealth and spending, and the fact consumers can't buy China's shut in production. Over the past few years, analysts have begun to face the possibility of deglobalization. Our fast return scenario assumes that economic growth is much faster, and the economy quickly returns to full employment, even without a major stimulus bill. The fall spike in COVID-19 cases requires additional closures and prevents many people from wanting to resume normal activities. Real gross domestic product (GDP) increased at an annual rate of 33.4 percent in the third quarter of 2020, as efforts continued to reopen businesses and resume activities that were postponed … The United States may, therefore, see relatively high levels of investment in this recovery. The great layoff of April 2020 saw employment plunge by more than 20 million, with most industries suffering a decline of more than 10%. Trend gross domestic product (GDP), including long-term baseline projections (up to 2060), in real terms. That’s why Fed Chairman Jerome Powell has emphasized the importance of action by Congress and the president.18 As he points out, the Fed has “lending, not spending, powers.” It would be foolish to expect Fed action alone to solve this economic crisis. State governments succeed in broadly deploying vaccines by mid-2021, and economic activity then starts to pick up. For example, it is asking Florida banks to have risk management plans for hurricanes. Health Care Costs Will Continue to Increase. And almost immediately after the adoption of the USMCA trade treaty for North America, the United States imposed tariffs on Canadian aluminum. The March recession ended 128 months of expansion, the longest in U.S. history. In Q2, the economy contracted by a record 31.4%. In March 2020, the FOMC held an emergency meeting to address the economic impact of the COVID-19 pandemic, which lowered the fed funds rate to a range of 0% and 0.25%., And on Sept. 16, 2020, the FOMC announced it would keep the benchmark rate at its current level of .1% until inflation reached 2% over a long period of time. We expect it to become an upper-income economy during the current five-year plan period (2020-25). Publications range from in-depth reports and thought leadership examining critical issues to executive briefs aimed at keeping Deloitte's top management and partners abreast of topical issues. Once the global economy recovers, investors may demand less of this ultra-safe investment, increasing yields and interest rates. Although the pandemic is a global phenomenon, leaders have made major decisions about how to fight it—in both health and economic policy—on a country-by-country basis. March 2020 Update: While the Corona Virus scare is punishing China's economy, the US seems to caught an economic flu, driven by media reports. After spending the mostly unused restaurant budget of six months on a home gym, what does a household do with the next six months’ restaurant budget? That’s not too different from the maximum decline from the peak in the 2007–09 recession and would take about a year and a half to reverse at the recent years’ average GDP growth rate. Other declines will occur in the postal service, agriculture, and some information-related industries.. has been saved, United States Economic Forecast For example, requirements for cleaning and social distancing will likely raise prices of restaurant meals, airplane travel, schooling, and many services—such as day care—over the next year. Copy a customized link that shows your highlighted text. Goldman Sachs is … Without a relief bill, many industries will feel the drop in spending, from both lower unemployment benefits and state and local layoffs. “Dec. "Federal Reserve Press Release, Sept. 16, 2020." Overall, global gross domestic product is forecast to decline by 4.4% this year, ... (2020-25). It predicts crude oil prices will average $43 per barrel in the fourth quarter of 2020, and $49 per barrel in 2021 for Brent global. At that point, there may be reasons for businesses to begin increasing investment. Board of Governors of the Federal Reserve System. Inflation. Sep. 11, 2020, 05:54 AM. The Fed's target inflation rate is 2%. The core inflation rate—the Fed's preferred rate when setting monetary policy—strips out volatile gas and food prices. Quarterly GDP had never experienced a drop greater than 10% since record-keeping began in 1947., In April, retail sales were down 14.7% as governors closed nonessential businesses, but by May sales recovered, increasing by 18.3% as shops and restaurants slowly reopened safely. Consumers are sitting on considerable savings and are ready to spend. Managing to operate during the pandemic for over a year is a different challenge—and a daunting one. Accessed Dec. 22, 2020. The Congressional Budget Office suggests that the multiplier, or bang for the buck, of federal spending on GDP is higher from direct federal spending, or transfers to state and local governments, for infrastructure than for tax cuts.16 An effective stimulus will likely focus on those areas. “Annual Energy Outlook 2020,” Page 6. The core inflation rate is predicted to be 1.4% in 2020, and slowly rise to 1.8% in 2021, 1.9% in 2022, and 2% in 2023. COVID-19 may have accelerated this trend. Global damage from natural disasters associated with climate change, such as hurricanes, floods, and wildfires, was $150 billion in 2019, down from $186 billion in 2018. In the midst of the pandemic, the US-China trade war shows no sign of abating. Graph and download economic data for FOMC Summary of Economic Projections for the Growth Rate of Real Gross Domestic Product, Central Tendency, Midpoint (GDPC1CTM) from 2020 to 2023 about projection, real, GDP… The economy recovered in the third quarter (Q3) of this year, expanding by 33.1%. Baseline (65%): The lack of a substantial relief package leads US GDP to stall, starting at the end of 2020. The Kiplinger Letter's Must-Read Political and Economic Forecasts for 2020 business The annual outlook reveals what to expect from the U.S. economy, … Social login not available on Microsoft Edge browser at this time. The lack of opportunities in the old areas will help, but many businesses in manufacturing may need to invest substantial effort—and perhaps higher wages—to attract workers, even as unemployment remains high. Some durable goods suppliers, such as automobile manufacturers, are used to boom-bust cycles in consumer demand. The firm on Friday dramatically cut its US economic forecast and is expecting gross domestic product will decline by 24% in the second quarter of 2020 due to the coronavirus pandemic. Workers who suffer longer spells of unemployment find it harder to return to work. The pandemic is intensifying, statewide curfews are back and Washington is asleep at the wheel. In the longer term, the Fed will want to wean markets off of its aid. 06 October 2020 Chris Varvares Joel Prakken, Ph.D. View in article, Jerome H. Powell, “COVID-19 and the economy,” speech, Board of Governors of the Federal Reserve, April 9, 2020; Jerome H. Powell, “Current economic issues,” speech, Board of Governors of the Federal Reserve, May 13, 2020. There is uncertainty about the disease itself, raising difficult-to-answer questions for any business—questions about operations, customers, and costs. Federal Reserve of St. Louis. The indicator is measured in USD at 2010 Purchasing Power Parities. That’s not a good sign for the future of international cooperation and continued open borders. Thanks to Lester Gunnion, who played a key role in developing and producing this forecast. Federal Reserve Bank of Richmond. 16, 2020: FOMC Projections Materials, Accessible Version." 1 And employment snapped back somewhat in May and June, especially in accommodation and food services, the hardest-hit industry in the pandemic. Wars are external shocks; so are earthquakes … and diseases. In the baseline forecast, we expect overall demand to remain low, both because of the pandemic and because so many people are out of work. View in article, According to a recent poll, just 58% of Americans would agree to be vaccinated against COVID-19; see: R.J. Reinhart, “More Americans now willing to get Covid-19 vaccine,” Gallup, November 17, 2020. Employers laid off half of everyone working in arts, entertainment, and recreation and in food services and accommodation. A well-designed relief bill would address three main issues: As of the end of November, the chances of a significant lame-duck relief bill passing seem slim. “Facts and Statistics: Global Catastrophes.” Accessed Dec. 22, 2020. Department of Labor. Email a customized link that shows your highlighted text. Schools meet virtually, and some parents leave the labor force to manage their children’s schooling. Percent Change From Preceding Period in Real Gross Domestic Product.” Accessed Dec. 22, 2020. The pandemic has been especially brutal for women because of this: By September, the labor force was down some 5 million people from the peak in February, with women making up a disproportionate number of those who left the labor force.1 The total number of employed workers was down 10 million, or over 7%, from the February peak. Spending thus far has ballooned the budget deficit strong GDP growth near 33 %, stronger than anticipated previously economy. 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