U.S. Outlook to 2025

Updated: January 20, 2021

Government support and vaccine rollout provide hope.

Encouraging news concerning the development and production of effective vaccines suggests that the pandemic should start to fade, at least in developed countries like the United States, by the autumn of 2021. However, given that it will take a while before a majority of Americans can be vaccinated, the U.S. economy is in for a tough few months, as surging COVID-19 cases have forced many states to further tighten restrictions while they fight to control the spread of the virus.

Contents of the Winter 2021 edition:

  • Unleashing pent-up demand will be important in 2021
  • Post-pandemic economics: The times they are a-changin’


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Key findings

After contracting by more than 3.0 per cent in 2020, the U.S. economy will expand by 4.2 per cent in 2021. Key factors behind the rebound include the rollout of vaccines, additional government fiscal support, and pent-up demand as Americans spend some of the savings they built up last spring when most of the economy was shut down.

While labour markets have recovered from the shock to the economy last April and May, there are still around 9 million fewer jobs today than there were at the beginning of 2020 prior to the onset of the pandemic. Some of these jobs have been lost for good, as many businesses in the service sector of the economy couldn’t survive widespread shutdowns.

It will take until sometime in 2024 before employment returns to pre-pandemic levels. The unemployment rate will decline through the medium term, but it will not drop below the 4.0 per cent mark as it had done in the early part of 2020.

Unlike during the 2008–09 recession when men suffered more job losses, women have been hit the hardest during this latest recession. More women have lost their jobs this time because they dominate sectors of the service sector, such as restaurants, which have been battered the most by government-ordered shutdowns. Also, many women with children have been forced to leave the workforce due to school and daycare closures.

The U.S. fiscal deficit will gradually decline after hitting a record high of well over $3 trillion in 2020. But deficits in the $1-trillion range will persist through the medium term. Financing costs, while challenging, will be manageable thanks to rock-bottom interest rates, which are expected to persist until at least 2023.

To deal with such issues as increasing income inequality, declining education standards, and poor health care—challenges that existed prior to the pandemic but deteriorated to an even greater degree throughout 2020—the federal government may have to consider measures such as higher minimum wages, wealth taxes, and a national early childhood education program.

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