US economy limps into 2021
The U.S. economy is poised to start 2021 by either sliding into a double-dip recession or beginning the long road to recovery.
For now, the prospects for growth during the winter months look bleak. COVID-19 cases are rising in almost every state, and congressional leaders have yet to strike a deal on another coronavirus relief package.
On top of that, consumer sentiment is falling and state and local governments have started reimposing tougher measures to slow the spread of the virus.
But the winter of economic discontent is likely to lead to revival in the summer, perhaps even earlier.
Two pharmaceutical companies recently filed for emergency use authorizations for COVID-19 vaccines that have proven highly effective in clinical trials. Others are in the pipeline, raising the possibility that a significant portion of the population could be vaccinated by mid-2021.
Economists are predicting that as COVID-19 restrictions are pulled back and consumers resume dining out, going to bars and attending sporting events, a year’s worth of pent-up demand will push economic growth to levels not seen in decades.
But while economists largely agree that 2021 will be a year that starts in a ditch, uncertainties remain about the speed of the eventual recovery and whether those gains will be enough to help those who have suffered the most during the coronavirus-induced recession.
Navigating those uncertainties will be top priority for President-elect Joe Biden when he takes office on Jan. 20, and may very well determine the trajectory of his presidency.
Economists across the political spectrum agree that the economic recovery will be almost wholly dependent on public health.
“Much of it depends on the path of vaccines for coronavirus: when are they widely available, when do people take them, how do they respond after that. Any views about the economy next year have to have assumptions based on that,” said David Berson, chief economist at Nationwide Insurance.
“If it turns out the vaccines are brought to the public less quickly, or are less effective than we thought, or they don’t last as long as we hoped, then that could cause activity to be less,” he added.
Mark Hamrick, a senior economic analyst at Bankrate, said that while some things will go back to normal once a vaccine is widely available, other aspects of the economy will face a tougher return to normalcy.
“The pandemic has certainly fanned the flames of change in a way that we haven’t been able to anticipate,” he said. “There are going to be long-term repercussions of affected sectors.”
Even small changes could affect industries dramatically.
For example, businesses that have gotten used to holding virtual meetings may be less inclined to shell out for plane tickets and hotels when a Zoom call is seen as sufficient. And retail stores that have conducted most of their sales online may find that customers are happy to forgo in-store shopping, accelerating the declining demand for commercial real estate and the popularity of malls.
But most of all, he said, the financial toll of the pandemic could leave scars, particularly for women and communities of color who have been disproportionately affected by the downturn.
“There’s been significant damage to workers’ personal finances, which have long-term repercussions that mean that some people won’t be as financially well qualified as they were before the pandemic, and that has lingering impacts,” he said.
While the economy will likely be different than it was pre-pandemic, and unemployment may not reach the 3.5 percent level where it hovered before the pandemic, Berson is optimistic that 2021 will be a banner year, with growth clocking in around 4.5 percent to 5 percent.
“It would be the strongest year we’ve had since the 1980s,” he said.
The strength of the recovery will be influenced in large part by whether Congress passes another coronavirus relief package.
The record $2.2 trillion Coronavirus Aid, Relief and Economic Security Act in March was widely credited with preventing a full-on economic collapse by boosting consumer spending and spurring an unexpectedly quick bounce back in employment.
But many of the law’s key provisions expired on July 31, and several more are set to end on Dec. 31.
The economic boost from expanded unemployment benefits is running dry, and businesses that took bridge loans early on are running out of the funds they need to stay afloat until most of the population is vaccinated.
“So many people are struggling to put food on the table and pay bills and rent — it’s an American tragedy, and it is essential we move with urgency,” said Janet Yellen, Biden’s pick for Treasury secretary. “Inaction will produce a self-reinforcing downturn, causing yet more devastation.”
Biden has indicated he would support a compromise deal before he takes office, saying that “any package passed in the lame-duck session is likely to be, at best, just the start.”
But a complicating factor for Biden — and the main congressional negotiators — is that the Senate majority for 2021 remains unknown. If Republicans win just one of two runoffs in Georgia on Jan. 5, they will keep their majority, making them unlikely to give much ground on negotiations.
Berson said the delay in relief is affecting economic forecasts.
“That plays a role in assuming the first quarter is pretty weak,” he said.