- 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.
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.”