Unemployment declining faster in states that are cutting off $300 enhanced federal benefits, according to WSJ

Kansas City, Missouri
Kansas City, Missouri.

  • Unemployment is declining faster in states ending weekly $300 federal benefits, per the WSJ.
  • Missouri ended enhanced federal benefits for unemployed state residents as of June 12.
  • The state’s unemployment rate sits below the national average, but many continue to struggle.
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The number of Americans receiving unemployment benefits is declining at a faster rate in Missouri and 21 other US states that opted out of receiving enhanced federal payments this month, according to The Wall Street Journal.

Under the $1.9 trillion COVID-19 relief package that President Joe Biden signed into law in March, weekly federal pandemic compensation of $300 was added to state unemployment checks, with the benefits slated to expire in September.

Republican-led states recently moved to cut off the expanded unemployment aid, decrying its effect on job creators and alleging that the extra money keeps individuals from seeking millions of open jobs. Most Democratic-led states have embraced the aid, calling it a vital resource for the unemployed as the country continues to recover from the coronavirus pandemic.

GOP Gov. Mike Parson of Missouri said that federal benefits were gladly welcomed during the height of the pandemic, but with much the economy reopening, the continuation in payments “worsened the workforce issues” the state faced.

Amid concerns about a labor shortage, most GOP governors nixed what they saw as overly-generous federal aid.

In May, the Missouri’s unemployment rate was 4.2%, below the national average of 5.8%, according to data from the Department of Labor.

Missouri ended enhanced federal benefits for unemployed state residents as of June 12, making it one of the first states to take the action.

Seven additional states followed suit for the week ending June 19, and this weekend, 10 additional states will end aid to unemployed residents.

By July 10, four more states will have cut off enhanced benefits.

Read more: Meet 7 BidenWorld longtime consiglieres and a couple relative newcomers who have access to exclusive White House meetings

The number of individuals who received unemployment benefits decline by 13.8% by the week ending June 12, compared to mid-May, in states where governors explicitly said that enhanced benefits would end in June, based on an analysis by Jefferies LLC economists.

This figure compares to a 10% decline in states that are ending benefits in July, and a smaller 5.7% decline in states that intend to keep the benefits until the funding ends in September.

Impacted individuals would lose the $300 federal funding, but will continue to receive state unemployment benefits.

Aneta Markowska, Jefferies’ chief financial economist, told the Journal the result of states opting out of enhanced benefits was beginning to show.

“You’re starting to see a response to these programs ending,” she said, adding that “employers were having to compete with the government handing out money, and that makes it very hard to attract workers.”

However, some economists and a wide swath of Democrats point to issues such as a lack of adequate child care, low hourly wages in some industries, and a continued trepidation over COVID-19 in explaining why many have not rejoined the workforce.

In Missouri, the state’s workforce fared relatively well, with its unemployment rate peaking at 12.5% in April 2020, compared to the 14.8% national unemployment rate that month.

However, despite the less-than-dire outlook that comes from looking at the overall numbers, real people continue to struggle.

The Journal spoke with Davina Roberson, a 45-year-old Fenton, Mo., mother of two boys with special needs who was furloughed from her $26-an-hour position as a corporate travel agent last year.

While she continued to receive critical health benefits through her old employer, she would have to forgo the coverage if she took another role.

Roberson told the Journal that she has now sought help from food pantries and charities for clothing.

“It’s not that I don’t want to go back to work,” Ms. Roberson told the Journal. “But if I took a minimum wage job, I’d be working for health insurance and child care and have nothing left to live on.”

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3 reasons the disconnect between high unemployment and available job openings could continue long-term, according to Morgan Stanley’s wealth-management CIO

Lisa Shalett
Lisa Shalett, the chief investment officer of wealth management at Morgan Stanley.

  • Lisa Shalett analyzed the disconnect between robust hiring demand and elevated joblessness.
  • The Morgan Stanley wealth-management CIO named three factors that could make the disconnect persist.
  • They are accelerated retirements, a growing skills gap, and geographic imbalances in the labor pool.
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The number of job openings in the US reached a record high of 9.3 million in April. At the same time, the unemployment rate remained elevated at 5.8%, according to data from the US Bureau of Labor Statistics.

The disconnect between these figures has been the source of debate for many economists and market watchers.

Now, Morgan Stanley is shedding some light on why the US economy may be seeing such a dynamic.

In a blog post this week, Lisa Shalett, Morgan Stanley’s chief investment officer of wealth management, described three reasons behind the high levels of unemployment amid record available job openings. She detailed the challenges facing both employers and job seekers in today’s jobs market.

Shalett says job seekers are struggling with public-health concerns, the availability of childcare, and the seasonality of school reopenings, while also noting that some experts believe pandemic-related federal aid might dissuade some unemployed people from returning to work.

On the other hand, Shalett says employers are struggling to find talent, with some manufacturers even cutting shifts to avoid operating at a loss.

Shalett goes on to reveal three main reasons the disconnect between high unemployment and available job openings might linger.

Accelerated retirements

The first factor Shalett cited in her blog post was accelerated retirements. According to Morgan Stanley’s chief US economist, in the 12 months to February, the US retiree population jumped by 2 million.

Shallet said this trend couldn’t be explained by aging alone and might lead to a persistent gap between unemployment and job openings.

A widening skills gap

The second factor is a widening skills gap between what employers need and what employees have to offer.

The CIO said this suggested there was a tighter labor market than indicated by headline unemployment data, as companies compete for a smaller field of qualified workers.

A Beyond Skills survey of 1,000 executives across several sectors found that more than 60% of business leaders believed the events of 2020 had widened the skills gaps in their businesses, per City AM.

Geographic imbalances in the labor pool

Finally, Shalett highlighted “pandemic relocations” that had become permanent. She said resulting geographic imbalances in the labor pool had added to the disconnect between the number of jobs on offer and the number of job seekers.

Nearly 36 million people changed addresses in 2020, according to data from the US Postal Service. And a CBRE analysis found that “net move-outs from high-cost coastal cities increased.”

Shalett warned clients in her post that if these factors continued to foment a tighter labor market, it could cause inflationary pressure.

She said investors should watch average hourly earnings, total real income, and the Employment Cost Index for evidence of “sticky inflation.”

The CIO also recommended investors “emphasize security selection, with a focus on companies that have pricing power and levers to sustain profit margins in the face of growing headwinds.”

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The US economy is set to grow at the fastest pace since 1984 thanks to stimulus and the rapid vaccine rollout, the OECD said

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The US has rolled out coronavirus vaccines quickly.

  • The US economy is set to grow at the fastest pace since 1984 this year, the OECD has said.
  • US gross domestic product would grow 6.9% in 2021, after contracting 3.5% in 2020, it said.
  • The organization said the US’ huge stimulus and speedy vaccine rollout was boosting growth.
  • See more stories on Insider’s business page.

The US economy is set to grow at the fastest rate since 1984 this year thanks to government stimulus and the speedy rollout of coronavirus vaccines, the Organisation for Economic Co-operation and Development (OECD) has said.

In its latest economic outlook, the OECD group of rich countries said US gross domestic product would grow 6.9% in 2021, after contracting 3.5% in 2020. That would be the biggest increase since 1984, according to World Bank figures.

The OECD’s new US forecast was an upgrade from March’s prediction of 6.5% growth, which was itself a sharp improvement on a December estimate of 3.2%.

The successive upgrades reflect the impact of both President Joe Biden’s $1.9 trillion stimulus bill and of vaccines, which are allowing states to reopen their economies. More than half of the US population has now had at least one shot.

“Substantial additional fiscal stimulus and a rapid vaccination campaign have given a boost to the economic recovery,” the OECD analysts wrote in their report.

The authors said the recovery had picked up speed: “Indicators of consumption activity have risen, with strong household income growth and a gradual relaxation of containment measures boosting spending.”

They added: “The reopening of the economy due to widespread vaccination of the population will enable activity in more sectors to return to normal.”

The OECD is a global organization that promotes growth and trade, with 38 member countries. Its economic forecasts are closely watched.

It predicted that the global economy would grow 5.8% in 2021, up from its March forecast of 5.6%.

Yet the global recovery will be highly uneven, and the pandemic will hit some countries’ living standards hard, according to OECD chief economist Laurence Boone.

“It is with some relief that we can see the economic outlook brightening, but with some discomfort that it is doing so in a very uneven way,” she said in an introduction to the report.

“It is very disturbing that not enough vaccines are reaching emerging and low-income economies. This is exposing these economies to a fundamental threat because they have less policy capacity to support activity than advanced economies.”

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Americans are sitting on $2.6 trillion in excess savings from the pandemic that can help power a recovery, Moody’s says

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Americans built up extra savings over the pandemic as spending opportunities were limited.

Americans have built up excess savings worth $2.6 trillion since the start of the coronavirus pandemic that will help power the economy’s recovery from the crisis, according to Moody’s Analytics.

The US has amassed the most excess savings of any country, with the cash pile amounting to 12% of gross domestic product.

Around the world, people have built up extra savings worth $5.4 trillion, equal to around 6.5% of GDP. Savings have shot up as opportunities for spending have been limited by lockdowns but central banks and governments have pumped money into economies to support employment.

“An unleashing of significant pent-up demand and overflowing excess saving will drive a surge in consumer spending across the globe as countries approach herd immunity and open up,” said Mark Zandi, chief economist at Moody’s Analytics, a sister company of the credit ratings agency, in a note.

Zandi said Moody’s expects 20% of the US excess savings to be spent in 2021, adding 2.4 percentage points to real GDP growth in 2021. The analysis company expects the US economy to grow 6.4% in 2021 after shrinking 3.5% in 2020.

A further 20% will then be spent in 2022, Moody’s predicted, adding another 2.4 percentage points to annual growth, which is set to come in at 5.3%.

However, Zandi said the unequal nature of the savings built up in the US would limit an even bigger boom in spending.

“Much of the excess saving has been by high-income, high-net-worth households who are likely to treat the saving more like wealth than income, and will thus spend much of less it, at least quickly,” he said.

Moody’s data showed that nearly two-thirds of the excess savings in the US is by households in the top 10% of the income distribution, and three-quarters is by those in the richest 20%.

Excess savings are defined as extra savings on top of what households would have put aside had coronavirus not occurred and their behaviour been the same as in 2019.

Earlier this month, JPMorgan strategist Karen Ward said the large build-up in consumer spending could lead to stronger-than-expected inflation, which could in turn cause volatility in stock markets.

“The US consumer is generally not known for its reserve and thriftiness at the best of times,” she said.

Ward said she thought it was likely that inflation averaged 3% over the next decade. Core personal consumption expenditure inflation, the Federal Reserve’s preferred measure, stood at an annualized 1.4% in February.

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The US economy is set to fully recover to pre-COVID levels this quarter – a feat that took more than 3 years after the last financial crisis

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  • Real gross domestic product for the US economy is set to return to pre-coronavirus levels this quarter, economists say.
  • It’s a feat took more than 3 years after the last financial crisis, Commerzbank analysts said.
  • The IMF has said the scarring from COVID will be far less than after 2008 in advanced economies.
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Real gross domestic product for the US economy is likely to retake its pre-coronavirus levels this quarter, economists predict.

The measure of GDP – which provides an inflation-adjusted snapshot of overall economic value – is set for a much faster recovery than after the financial crisis that ran from 2007 to 2009, when the economy took more than three years to regain its pre-crisis size, according to economists at German lender Commerzbank.

“GDP is expected to return to pre-crisis levels as early as the current quarter,” wrote Commerzbank economists Bernd Weidensteiner and Christoph Weidensteiner in a note.

They added that US real GDP took 13 quarters to reach its pre-crisis peak following the financial crisis.

“High-frequency data show that the US economy gained noticeable momentum in March,” they said. “Corona-related restrictions are being relaxed in more and more states, and fiscal policy is pumping trillions of dollars into the economy.”

Goldman Sachs economists have a similar timeline, predicting that real GDP should be well above its pre-coronavirus level by the end of the quarter.

By the firm’s measure, real GDP stood at $19.24 trillion in the final quarter of 2019, and forecasts that it will recover to reach $19.62 trillion in the second quarter of 2021, thanks in large part to strong growth in the first and second quarters.

The US economy shrank 3.5% in 2020, marking its biggest annual contraction since World War II.

But the temporary nature of many of the coronavirus restrictions, the arrival of vaccines, and huge amounts of stimulus mean the economy is set to rapidly rebound in 2021, analysts say.

Commerzbank expects the US economy to grow 6% or more in 2021. Goldman has forecasted growth of 7.2%, more optimistic than the consensus estimate of 5.7%. Both of those estimates would put real US GDP well above its pre-coronavirus level by the end of the year.

On Tuesday, the International Monetary Fund predicted that the world’s richest economies would suffer little lasting damage from the coronavirus pandemic.

The Fund said in a major report that output is expected to be around 1% lower than it would have been by 2024 in advanced economies. That compares to a medium-term loss of output of around 10% after the financial crisis.

The IMF said the unprecedented policy response during the coronavirus crisis had “helped preserve economic relationships, cushioned household income and firms’ cash flow, and prevented amplification of the shock through the financial sector.”

However, it said the loss of output would be much bigger in developing economies, particularly in those with weaker public finances or a reliance on tourism.

Read more: We asked 5 renowned growth-fund managers for their favorite stock picks. These are the 4 that multiple managers think will crush the market going forward.

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The US economic recovery is turning from ‘forecast to fact’ but inflation is not a concern, Goldman Sachs says

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Hiring picked up rapidly in March as the US economy continued to reopen

  • Goldman said the strong US economic recovery is turning “from forecast to fact” as hiring picks up.
  • Its chief economist said the economy should grow 7.2% in 2021 after contracting 3.5% in 2020.
  • Yet Goldman said it is not overly worried about inflation, because unemployment should weigh on prices.
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The jump in employment in March shows that the rapid US economic recovery is “turning from forecast to fact,” Goldman Sachs has said.

Goldman’s chief economist, Jan Hatzius, said that despite the predicted 7.2% jump in US GDP in 2021, inflation was unlikely to be a problem as the economy would stay “well below” full employment.

The US economy added 916,000 nonfarm payroll jobs in March, data showed on Friday – far above economists’ expectations of 660,000.

Hatzius said in a note on Monday evening that the data “confirms that sharp acceleration is turning from forecast to fact.”

He said Goldman expects the US economy to grow rapidly in the first half of this year, thanks in large part to President Joe Biden’s $1.9 trillion stimulus package.

“We expect real GDP growth to climb from 7.5% in Q1 to 10.5% in Q2 on the back of the recent $1,400 tax rebates as well as the ongoing reopening of the most covid-sensitive sectors,” Hatzius wrote.

Goldman predicts the economy will grow 7.2% in 2021, well above the consensus estimate of 5.7%, after shrinking 3.5% in 2020. It then expects growth of 4.9% in 2022.

Yet Goldman’s chief economist said the bank is less worried than some others about “overheating” in the economy – that is, dangerous inflation.

“Our estimates show that the various growth boosts – from reopening, fiscal easing, and financial conditions – should only push output and employment modestly beyond full capacity.”

Goldman has downgraded its forecast for “core personal consumption expenditures inflation” to peak at 2.3% year-on-year in April, up from 1.4% in February.

Stronger growth expectations have prompted concerns among some investors that inflation could start to rise sharply, potentially causing the Federal Reserve to cut back on support for the economy sooner than expected.

Yet Goldman predicted that underlying US inflation would remain “well below the Fed’s 2% target, consistent with an economy that remains well below full employment.”

“All this has increased our confidence that Fed officials will be able to stay the course in exiting only very gradually from their highly accommodative stance,” Hatzius wrote.

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Goldman says the US unemployment rate could drop below 4% this year as stimulus and coronavirus vaccines fuel the recovery

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Goldman Sachs said the latest US unemployment figures were encouraging

  • Goldman Sachs economists said the unemployment rate could drop to well under 4% in 2021.
  • Their baseline prediction remains for a fall to 4.1% by the end of the year, from 6.2% in February.
  • Coronavirus vaccines and $1.9 trillion of stimulus are set to light a fire under the economy, analysts say.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

Goldman Sachs economists have said the US unemployment rate could drop sharply to below 4% this year if the $1.9 trillion stimulus package and coronavirus vaccines power an even stronger “hiring boom” than expected.

The economists, led by Joseph Briggs, said in a note on Monday their baseline forecast remained for unemployment to drop to 4.1% by the end of the year, from February’s level of 6.2%. That is one of the most optimistic forecasts on Wall Street.

Yet they said there is some possibility of a return to the pre-pandemic rate “in the mid-3s” this year.

“The main reason that we expect a hiring boom this year is that reopening, fiscal stimulus, and pent-up savings should fuel very strong demand growth,” the Goldman analysts wrote.

“We expect that the labor market recovery will accelerate this spring on the back of increasing vaccinations and easing of policy restrictions.”

The US unemployment rate shot up to 14.7% in April last year, as coronavirus hit the economy, a level not seen since the Great Depression.

But it has fallen relatively sharply as states have eased restrictions and the government and Federal Reserve have pumped trillions of dollars of support into the economy.

On Friday, data showed that nonfarm payrolls increased by 379,000 in February and the unemployment rate fell to 6.2% from 6.3% a month earlier.

Screenshot 2021 03 08 at 11.44.43

The Goldman economists said Friday’s data was encouraging, because it showed a sharp increase in the virus-depressed leisure and hospitality category, “hinting at further large gains to come.”

They added: “Two-thirds of remaining pandemic job losses are in highly virus-sensitive sectors, where employment should rebound as the economy fully reopens.”

The Goldman note comes after the US Senate approved President Joe Biden’s $1.9 trillion stimulus bill, having passed a $900 billion package in December.

Goldman said it expected unemployment to fall to 4.1% by the end of 2021, 3.7% by the end of 2022, 3.4% in 2023 and 3.2% in 2024.

A fall to 3.2% would be considerably below than the 50-year low of 3.5% seen before the coronavirus pandemic hit.

However, the note said there were risks to the forecast, including that the $300 a week unemployment benefit top-up “could discourage laid-off workers from returning to work”, although it said these effects would likely be small.

It also said that companies had turned to automation and labor-saving technology during the pandemic, suggesting that “not every pre-pandemic job will be filled again.”

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The jobs report may look good, but it also proves the economy is sicker than it seems

  • The jobs report showed the US economy added 379,000 jobs in February and the unemployment rate dropped to 6.2%.
  • But that good news actually hides just how much the labor market is really struggling.
  • Nick Buffie is an economic policy analyst and graduate of the the Harvard Kennedy School.
  • This is an opinion column. The thoughts expressed are those of the author.
  • Visit the Business section of Insider for more stories.

Earlier this morning, the Bureau of Labor Statistics released its February 2021 jobs report. Over the coming days, the media will likely focus on two statistics: the unemployment rate (which fell to 6.2%) and the number of jobs created (379,000), both of which were better than economists’ expectations. But despite the focus on these numbers, both measures greatly overstate the strength of America’s labor market.

There are a couple of technical reasons for this. To be counted as unemployed, a jobless individual must fit a specific set of criteria: they must want to work, be available to work now, and have searched for work within the past four weeks. In the time of COVID, there are many reasons why a jobless American might not be classified as “unemployed.” They may need to care for a loved one with COVID, or perhaps for a child attending school online. Or they may give up the job hunt after months of futile searching.

Overall, the unemployment rate has increased 2.7 percentage points since January 2020. Yet this increase accounts for less than half of all job losses. Adjusted for population growth, the number of unemployed Americans has only gone up by 4.1 million, despite the fact that employment is down by 9.3 million.

Even high ranking economic officials like Treasury Secretary Janet Yellen and Federal Reserve Chairman Jerome Powell have admitted that the headline unemployment rate is misleading and overstates the strength of the job market.

Labor Force Table

The number of jobs created is a similarly misleading measure. If the rate of job growth is slower than the rate of population growth, the employment rate will decline even as the number of jobs increases.

Fortunately, there are better ways of diagnosing the condition of the labor market. But unfortunately, each of the improved metrics indicates that the economy is even sicker than we thought.

The prime-age employment rate

It is easy to correct for the biases in the metrics above. Rather than looking at unemployment, look at employment; and instead of counting the number of jobs, count jobholders as a share of the population.

However, correcting for these errors still leaves a third source of bias: aging. As Baby Boomers hit retirement age, a larger share of the population will choose to stop working. So the overall percentage of Americans who are employed will fall, even if job prospects aren’t worsening for working-age people.

Given the demographic shift, the best metric is the prime-age employment rate, which measures the share of 25 to 54 year-olds with a job. As shown in the graph below, prime-age employment fell from 80.5% the previous January to 69.6% by April. The labor market then experienced four months of rapid recovery, regaining over half the lost jobs. 

Yet since then, employment growth has been stagnant. As of last month, the prime-age employment rate was 76.5%, down 4.0 percentage points from where it was at the beginning of 2020 – meaning that nearly 5.1 million prime-age Americans remain out of work. Notably, this is greater than the increase in unemployment among the entire adult population.

Prime Age Employment Rate

Involuntary part-time employment

The unemployment rate measures unemployed Americans as a share of the civilian labor force. It is calculated via the following formula:

Unemployment Definition

A better metric would consider a group less susceptible to dropping out of the labor force. So instead of looking at the unemployment rate, I have created a parallel measure called the involuntary part-time employment rate. It is methodologically similar to the unemployment rate, but instead measures involuntary part-time workers – those who have had their hours cut or can’t find full-time work – as a share of the full-time workforce. (The measure excludes “voluntary part-time workers,” which are people who prefer to work part-time.) Its formula is given below:

Involuntary Part Time Definition

This measure tells a similar story to the prime-age employment rate. As of January 2020, just 3.1% of workers who prefer full-time employment were stuck in part-time jobs. That rate almost tripled over the next three months, peaking at 9.0% in April. It then began declining, falling to 4.9% as of September. 

Yet last month, the involuntary part-time employment rate was 4.6% – just 0.3 percentage points below where it was five months prior, and still 1.5 percentage points above its rate from a year ago. Here too, we see that the labor market is incredibly feeble, even beyond what the traditional metrics tell us.

Involuntary Part Time Employment Rate

The duration of unemployment

One last accurate barometer is the duration of unemployment – the time that workers spend between jobs. In a strong economy with ample job opportunities, we expect employers to generate plenty of new openings, with the unemployed quickly landing new jobs.

In today’s economy, we see the opposite. Approximately 42% of the unemployed have been out of work 27 weeks or longer – compared to less than 20% at the beginning of last year. Similarly, in January 2020, the unemployed reported having been out of work for a median duration of 9.3 weeks; that figure had risen to 18.3 weeks as of last month.

At this point, most commentators are pessimistic about the U.S. labor market – as they should be. But even the dreary reports understate just how bad it’s gotten. Along with the millions who have slipped into unemployment, millions more have dropped out of the labor force entirely. Many of the unemployed have been out of work for months on end, and for those lucky enough to have kept their jobs, there have been huge cutbacks in hours. Statistics like 6.2% unemployment and 379,000 new jobs provide only a glimpse of this story.

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Pimco says a $1.9 trillion stimulus could push US growth to 7.5% this year – a rate not seen since the 1950s

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President Joe Biden has pushed a $1.9 trillion stimulus plan

The US economy could grow by 7.5% in 2021 – a rate not seen since the 1950s – as a result of President Joe Biden’s $1.9 trillion stimulus package, analysts at investment giant Pimco said in a note on Wednesday.

Pimco predicted that although this rapid growth would push up inflation to above 2% over the “next several years”, it is unlikely to cause price rises to spiral due, in part, to the reduced bargaining power of workers.

Pimco head of policy Libby Cantrill and economist Tiffany Wilding said they expected the eventual stimulus package to be close to the $1.9 trillion size that President Biden is seeking.

They said the legislation’s focus on enhancing social safety net provisions such as unemployment benefits, coupled with direct support to households and businesses, “boosts the near-term growth outlook.”

Cantrill and Wilding added that the size of the package may also help to cushion the blow to the economy should any problems crop up, such as a slower-than-expected vaccination program.

They upped their growth prediction for the US economy in 2021 to between 7% and 7.5%, more than making up for the 3.5% contraction in 2020.

A 7.5% expansion would be the strongest since the early 1950s, although the US saw growth of more than 7% in 1984.

Rising growth expectations have troubled financial markets lately, however, as they have led to higher bond yields. This has made stocks look less attractive and pulled down the tech-heavy Nasdaq index this week.

The Pimco note said the rapid economic growth and rise in employment “doesn’t have huge implications for our inflation outlook.” Cantrill and Wilding said this was in part because a decline in labor unions means workers are now less able to achieve wage rises.

Nonetheless, Pimco expects US inflation to rise to 2% in 2021 before dropping to around 1.5% by the end of the year. It then expects inflation to gradually accelerate to a range of 2.2% to 2.5% over the course of the next several years.

“It’s not surprising that more investors are worried about another inflationary accident,” Cantrill and Wilding said.

Yet they added: “While a period of above-target inflation has become more likely, in our view, the likelihood of a self-reinforcing inflationary process similar to what happened in the 1970s is still relatively low.”

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‘Flood gates are about to open’: Bank of America just boosted its forecast for 2021 US GDP growth for these 3 reasons

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The IMF said vaccines would help the US economy recover sharply in 2021

  • The US economy is set for “stellar” economic growth in 2021, Bank of America said in a note on Monday.
  • The bank increased its 2021 US GDP growth estimate to 6.5% from 6.0% as it has become “more convinced” that the economy is set for a rebound after the COVID-19 pandemic.
  • Detailed below are the three reasons why Bank of America just increased its 2021 US GDP growth forecast.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

The US economy will experience “stellar” growth in 2021 as the COVID-19 pandemic subsides, Bank of America said in a note on Monday.

The bank increased its 2021 US GDP growth estimate to 6.5% from 6.0% as it has become “more convinced” that the consumer will get out and spend this year, the note said. The bank also sees heightened economic growth extending into next year, bumping its 2022 GDP growth estimate to 5.0% from 4.5%.

Here are the three reasons guiding Bank of America’s decision to increase its economic growth forecast, according to the note.

1. A larger fiscal stimulus package.

Congressional Democrats are pushing for a $1.9 trillion stimulus package that is scheduled to be voted on next month. But there is still work to be done on the bill, and some provisions proposed in the legislation will hit road blocks, BofA said.

“We now think that the bill will total $1.7 trillion, up from our prior assumption of $1 trillion. Not all provisions will hit the economy right away and we expect that $1.2 trillion of monies will hit this year with the rest spilling into next year and beyond,” BofA said, adding that the “flood gates are about to open.”

2. Better news on the virus front.

The recent news on the virus front has been “unambiguously positive,” BofA said, pointing to virus cases being down 72% from the January peak, with hospitalizations following closely behind. This encouraging data should help tightly locked down states like New York and California ease restrictions.

“Vaccinations are running at a faster-than-expected-rate, which should pull forward the timeline for successful reopening of the economy. This will help to unleash demand for leisure and other COVID-sensitive services even earlier than previously anticipated,” BofA said.

3. Encouraging economic data. 

Consumers quickly put their stimulus checks to work in December, with exceptionally robust retail sales data leading BofA to boost its first quarter GDP tracking estimate to 5.5%. A recovery in manufacturing has also materialized at a rapid pace as the housing market booms, evidenced by recent building permits data.

“The goods side of the economy is still riding high while the services side is waiting with bated breath to participate. We expect the economy to accelerate further in the spring and really come to life in the summer,” BofA said. 

The biggest downside risk to BofA’s estimates? If the virus curve steepens again, resulting in a fourth wave, according to the note, which added that it does not expect a rise in inflation will lead the Fed to hike interest rates too early. 

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