Fed lifts estimates for US economic growth and employment as vaccination speeds up

Federal Reserve
  • The Fed boosted its estimates for economic growth in its projections since December.
  • US GDP is forecasted to grow 6.5% this year, up from the prior estimate of 4.2%.
  • The Fed also sees the unemployment rate sinking to 4.5% by the end of 2021.
  • See more stories on Insider’s business page.

Federal Reserve policymakers boosted their projections for the US economic recovery on Wednesday as new stimulus and vaccine rollouts pave the way for a summer reopening.

The Federal Open Market Committee’s median estimate for 2021 gross domestic product growth rose to 6.5% this year, and 3.3% for 2022. That compares to the previous forecasts of 4.2% and 3.2%, respectively. The unemployment rate is now expected to dip to 4.5% this year, an improvement from the prior forecast of 5%.

The FOMC released its quarterly summary of economic projections following the second day of its March meetings. The central bank elected to hold interest rates at historic lows and maintain its pace of asset purchases at $80 billion in Treasurys and $40 billion in mortgage-backed securities per month.

The estimates are the first to be published since December, and therefore are the first to include the impact the $900 billion stimulus package passed late last year, the $1.9 trillion plan signed earlier this month, and the improved pace of vaccination. The developments have all been viewed as major boons to the economic rebound and prompted several economists to lift their own growth forecasts.

The nation’s fight against the coronavirus has also shifted significantly since the December FOMC meeting. Daily case counts surged to a peak above 300,000 in early January but have since tumbled to around 50,000 as distancing measures and vaccination curbs the pandemic’s spread.

New stimulus has been criticized by Republicans for risking runaway inflation through the recovery. Fed officials have countered such concerns in recent weeks. Jerome Powell has repeatedly said that, although reopening and stimulus can produce a quick jump in inflation, the effect will likely be temporary and give way to a similarly sharp decline.

The FOMC’s latest estimates reflect such an outlook. Members see personal consumption expenditures inflation – the Fed’s preferred price-growth gauge – reaching 2.4% in 2021, up from the previous 1.8% estimate. Inflation will then fall to 2% in 2022 and reach 2.1% the following year.

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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.
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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.

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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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California, Hawaii, and Nevada saw the largest jumps in unemployment last year, government data shows

FILE PHOTO: An employee routinely sanitizes server trays at a reopened restaurant after restrictions to prevent the spread of the coronavirus disease (COVID-19) are eased in Bloomfield Hills, Michigan, U.S., June 8, 2020.  REUTERS/Emily Elconin/File Photo
Restaurants are reopening in Michigan.

  • Nevada, California, and Hawaii had the largest unemployment spikes in 2020, new BLS data shows.
  • Nebraska, Utah, and South Dakota saw their unemployment rates rise the least.
  • Employment-population ratios sank to all-time lows in 15 states including Illinois and Virginia.
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The coronavirus sparked the worst unemployment crisis in nearly a century, but the damage differs significantly state by state, according to new data from the Bureau of Labor Statistics.

The nationwide unemployment rate averaged 8.1% throughout 2020 as the pandemic fueled a massive leap in unemployment before giving way to a now-meandering recovery. Yet that overall figure fails to capture massive disparities at the state level.

For one, four states saw average annual unemployment rate above 10% last year. Nevada faced the bleakest downturn, with unemployment averaging 12.8% in 2020. Hawaii and California followed with averages of 11.6% and 10.1%, respectively.

New York – the epicenter of the nation’s first COVID-19 outbreak – saw unemployment average 10% in 2020, according to the Wednesday report.

Conversely, some states’ labor markets saw negligible upticks in unemployment. Nebraska fared the best, with its own rate of 4.2% nearly halving the nationwide figure. Close behind were South Dakota and Utah with average rates of 4.6% and 4.7%, respectively.

Gaps also emerged in states’ employment-population ratios. The metric is a popular alternative measure of unemployment since it counts Americans who dropped out of the labor force.

The ratios fell to record-lows in 15 states, supporting fears that the economic fallout is among the worst ever seen in the US. Nevada, Hawaii, and Rhode Island suffered the biggest declines of the group. The national ratio fell to 56.8% from 60.8% last year.

Mississippi and West Virginia posted the lowest ratios of 50.6% and 50.3%, respectively. To be sure, the readings weren’t the lowest in history for either state. Nebraska ended the year with the highest employment-population ratio of 66.7%.

Overall, 23 states boasted ratios higher than the national figure. Yet all 50 states and the District of Columbia saw their employment-population ratios decline from levels seen in 2019.

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