US ECONOMIC OUTLOOK What's ahead for the US economy - Gregory Daco Chief US Economist
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US ECONOMIC OUTLOOK
What’s ahead for the US economy
Gregory Daco
Chief US Economist
gregorydaco@oxfordeconomics.com
Follow us on Twitter
@GregDaco
@OxfordEconomics
Death and hospitalizations reaching record-highs
US: COVID-19 deaths and hospitalizations
Deaths Hospitalizations
New deaths (7-day MA)
3,500 160,000
Currently hospitalized
3,000 140,000
120,000
2,500
100,000
2,000
80,000
1,500
60,000
1,000
40,000
500 20,000
0 0
Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb
Source: Oxford Economics/Haver Analytics
1
Vaccine diffusion will be gradual in 2021 2
Moving to a “delicate” recovery phase
US Recovery Tracker was flat in December
Financial
US: Recovery Tracker Mobility
(31-Jan-20 = 100) Production
Employment
Demand
100 Health
Recovery Tracker
80
60
40
20
0
Jan-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21
Sources: Oxford EconomicsCalifornia is heating up after cold winter 5
A durable health solution is indispensable 6
Limited US employment momentum at start of 2021 7
A rapid decline in the unemployment rate, but…
US: U3 unemployment rate
%
16 Apr:
14.7%
14
12 10.8%
10.0%
10 9.0%
7.8%
8 7.1%
6.1% 6.3% Dec:
6.7%
6
4
2 Average of 7
prior recessions
0
1960 1970 1980 1990 2000 2010 2020
Source: Oxford Economics/Haver Analytics
8Drop in labor force participation is worrisome 9
Entering a new phase of the recovery
Phase 2: The delicate vaccine rollout phase
GDP Q4 2019 = 100
Phase 1 Phase 2 Phase 3
110
105
Q3*
100
2019Q4 level
Q2*
Q4: Q1*
95 -10.1%
+1.0%
+7.5%
90
85
80
19Q4 20Q1 20Q2 20Q3 20Q4 21Q1 21Q2 21Q3 21Q4 22Q1 22Q2 22Q3 22Q4
Source: Oxford Economics
10Employment should pick up over spring/summer 11
Income support is key to consumer spending
The income paradox is a key feature of the Covid crisis
Household incomes
% q/q in Q2 20202
15
Personal disposable income
10 Compensation of employees
5
0
-5
-10
-15
Canada US Australia Germany France UK Italy
Source : Oxford Economics/Haver Analytics
13Fiscally-stimulated spending driven by low-income families 14
A massive $1.6tn cash stash for households 15
Expecting record-breaking spending this summer 16
With domestic leisure travel leading the rebound
Business and leisure trips Domestic and international trips
Index (2019=100)
Index (2019=100)
120
120
100 106
100 105 108 102
101 100 100 98
100 100 99 96
93
80 90 80 85
85 82
76
60 69
60 66
40 49 40
40 42
20 20 24
0 0
2019 2020 2021 2022 2023 2024 2019 2020 2021 2022 2023 2024
Business Leisure Domestic International
Note: Only domestic trips Source: Tourism Economics
Source: Tourism Economics
17Strong residential activity
Very strong homes sales and low inventory 19
But record low mortgage rates… 20
Business investment remains uncertain
Industrial activity is recovering at a steady pace
US: Industrial activity falls while far below peak
2012=100 / % of capacity
120
IP Manufacturing Capacity Utilization
110
100
90
80
70
60
2005 2006 2008 2010 2011 2013 2015 2016 2018 2020
Source: Oxford Economics/Haver Analytics
22Small businesses remain disproportionately exposed 23
Tech hubs and smaller cities will lead the recovery
US: Medium term metro outlook
24Fed will remain dovish for the foreseeable future
There will be a *transitory* inflation spike this spring
Food contribution
US: CPI inflation
Energy contribution
%, year
Core contribution
4.0 Forecast
Headline CPI
3.0
2.0
1.0
0.0
-1.0
-2.0
2014 2015 2016 2017 2018 2019 2020 2021
Source: Oxford Economics
26But a dovish Fed will maintain low rates 27
Financial conditions remain very accommodative
US: Financial conditions
0 = Average stress Oxford Economics FCI
6.5
5.5
4.5
3.5
2.5
1.5
0.5
-0.5
-1.5
-2.5
2014 2015 2016 2017 2018 2019 2020 2021
Source: Oxford Economics
28A Democrat-controlled Senate will support Biden’s ambitious agenda
Large and rapid fiscal stimulus without precedent
US: Funds authorized by Congress
Since first reported US death from Covid-19 (Feb 28, 2020)
Trillions, $
Since early signs of a financial crisis (Aug. 7th, 2007)
6.00
5.50
5.00
$1.9tn: American Rescue Plan*
4.50 (proposed, not passed)
4.00
3.50 $900bn: Covid relief bill
3.00 $787bn: American Recovery
$480bn: PPP & Healthcare and Reinvestment Act
2.50 (80 weeks after crisis began)
Enhancement Act
2.00 $2.4tn: CARES Act
1.50
$8bn: Preparedness bill
1.00 $190bn: Stimulus bill $700bn: TARP
0.50 $300 bn: Mortgage-guarantee bill
$152bn: Stimulus bill
0.00
0 100 200 300 400 500 Days
Source : Oxford Economics/CBOUpside risks from policy shouldn’t be discounted 31
Conclusions
Conclusions
• While near-term Covid risks are tilted to the downside, gradual vaccine diffusion,
increased fiscal stimulus and warmer weather should ensure stronger economic
activity and employment from early spring onward.
• In Q1, we believe GDP will only advance 1.5% (annualized), constrained by an
uncontrolled health crisis, but supported by the recently passed Covid relief stimulus
package and an expected additional round of $1,400 checks to families. From Q2 on,
broader vaccine diffusion, reduced virus fear, warmer weather, and healthy savings
should bolster the onset of a summer mini boom.
• Real GDP is likely to advance around 3.9% y/y in Q4 2021, versus 3.2% y/y in the
December baseline, on the back of increased fiscal stimulus.
• With Democrats winning Georgia’s runoff races, they will hold a “soft” 50-vote Senate
majority. Control of the Senate will allow President-elect Biden to enact more of his
ambitious fiscal agenda, which boosts prospects for stronger growth in 2021-2022.
• We continue to anticipate QE tapering won’t start until 2023, ahead of rate lift-off in
mid-2024.
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