U.S. Economy Forecast To Expand 5.7% In 2021

Ottawa, April 19, 2021 — The Conference Board of Canada forecasts that the U.S. economy will expand by 5.7 per cent in 2021 and 4.8 per cent in 2022.

A strong rebound in economic activity in the U.S. is being driven by a faster-than-anticipated rollout of vaccines against Covid-19, ongoing fiscal stimulus measures, and an ultra-accommodative monetary policy by the U.S. Federal Reserve.

The sharp rebound in growth stateside will close the output gap in the second half of this year much faster than The Conference Board of Canada had anticipated.

“Growth in America will be led by the consumer as households spend some of the close to $2 trillion in increased savings that they amassed last year due to restrictions on retail outlets and travel,” said Kip Beckman, Principal Economist at The Conference Board of Canada.

Prior to the pandemic, the savings rate among American households was around 7.0 per cent. But it surged to 16.0 per cent in 2020, including a 26.0 per cent rate in the second quarter of last year. If the savings rate drops sharply as the threat of the pandemic wanes and Americans ramp up their spending on travel and other goods and services, real GDP could expand at a pace approaching 8.0 per cent this year.

Despite the positive outlook, U.S. employment is unlikely to return to where it was before the global pandemic as many jobs that were lost in the service sector are now gone for good. While there will be solid increases in job growth over the near term, The Conference Board of Canada does not expect employment to return to pre-pandemic levels until sometime in 2023.

“The number of Americans classified as ‘long-term unemployed,’ those out of work for 27 weeks or longer, continues to increase,” says Pedro Antunes, Chief Economist at The Conference Board of Canada. “The concern is that in the post-pandemic economy the demand for some services that usually employ many low-paid workers, primarily in the accommodation and food sector, will be lower due to structural changes within the economy.”

The U.S. fiscal deficit rose above $3 trillion in 2020 and will continue at these levels, led in part by President Joe Biden’s recently enacted $1.9-trillion stimulus package. While the U.S. deficits are huge, they should be manageable as short‑term interest rates are not likely to rise until early 2023, at the earliest.

For more information, please visit The Conference Board of Canada’s website.