29 July 2021

Forecasters Lift Expectations for 2021 Economic Growth

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Forecasters are increasingly optimistic about economic growth this year, though less so about the labor market’s prospects, as it recovers from the effects of the coronavirus pandemic, a new Wall Street Journal survey shows.

Economists on average expected gross domestic product to expand nearly 4.9% this year, measured from the fourth quarter of the prior year, according to the business and academic economists surveyed in February, an improvement from their 4.3% forecast in January. They cited the distribution of Covid-19 vaccinations and the prospect of additional fiscal relief from Washington for the brightening outlook.

However, they were more cautious about the recovery in jobs. Economists this month on average expected employers to add 4.8 million jobs this year, down from the 5.0 million they projected in January and equal to just half of the 9.6 million jobs lost since February 2020. The forecasters saw a mean unemployment rate of 5.3% by year’s end, about the same level they projected in last month’s survey. The Labor Department said Friday the national jobless rate was 6.3% in January.

“The economy is already picking up some growth momentum in the first quarter,” said Brian Bethune, professor of economics at Boston College. “The large $1.9 trillion stimulus package will provide significant insurance against a relapse into recession,” he said, referring to President Biden’s proposal.

More than half of the respondents said the amount of fiscal aid the economy needs to recover from the coronavirus shock was less than $1 trillion, while only one said that more than $2 trillion was required.

Economists on average expected inflation to pick up, projecting 2.8% growth in consumer prices in June of this year from a year earlier, up from the 2.5% increase projected last month. The Labor Department said Wednesday its consumer-price index rose 1.4% in January from a year earlier.

The survey also showed growing expectations of a long-term rise in oil prices.

Survey respondents on average saw a 17.5% chance of another downturn in the next 12 months, down from 21.2% in January. Economists cited vaccines and the prospects for new federal spending as their main reasons for optimism.

A solid majority of forecasters (62.5%) said growth was likelier to overshoot their 2021 GDP estimate than it was to undershoot. However, 30.4% saw a higher risk of lower-than-expected growth, up from 25% in January’s survey.

A large plurality hailed vaccination as a key reason for optimism. However, the virus is an increasing source of worry. Nearly four-fifths of economists surveyed this month cited virus-specific concerns as the biggest risk to growth—compared with two-thirds in January. Half of forecasters this month specifically mentioned highly transmissible virus strains as the greatest threat to the expansion, a fivefold increase from the share in last month’s survey. However, that risk is still incipient: Around 60% said they don’t expect variants of the virus to reduce 2021 GDP growth.

“Much remains unknown about the length of time vaccines provide immunity, how we build the supply chain for vaccination, and the willingness of the American public to be vaccinated,” said Daniel Bachman, an economist at Deloitte. “The path to large-scale vaccination and herd immunity remains uncertain.”

Economist Amy Crews Cutts of AC Cutts & Associates LLC said that although she doesn’t currently predict that Covid-19 variants will sandbag growth, that possibility is the biggest threat to the recovery.

“If vaccination rates can grow, perhaps with new vaccines approved soon, before the virus mutates to a new level of bad, we could come out ahead very soon,” she said. “I don’t want to think about what happens if we don’t.”

The survey of 62 business and academic forecasters was conducted Feb. 5-9. Not all participants responded to every question.

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