US Economic Forecast Q4 2021


Baseline (60%): Growth resumes in late 2021 and early 2022 as the impact of COVID-19 eases. Households continue to increase their spending to meet pent-up demand for services such as entertainment and travel. However, spending on durable goods is stagnating as consumers revert to pre-pandemic models. Business investment continues to grow rapidly, particularly in information processing equipment and software. Investment in non-residential structures remains low, however, as the excess supply of office and retail buildings weighs on the market. Housing construction remains strong but is gradually declining, with the current level of construction being higher than what population growth can support. The infrastructure spending bill and a modest Build Back Better plan increase the level of government spending for most of the forecast period. All of this is helping to elevate demand above the pre-COVID-19 trend for several years. Inflation remains above the Fed’s target in 2022, but gradually returns to the 2% range as demand for goods weakens and businesses resolve their supply chain issues. The pandemic is triggering the widespread adoption of new technologies, leading to faster productivity growth. The unemployment rate is gradually falling below 4%. The Fed is raising rates in 2022 and continues to raise rates at a relatively rapid pace in 2023, as the economy is clearly heading towards full employment.

Dr Pangloss paging (5%): Dr Pangloss, a character of Voltaire Candid, would repeat that “everything is for the best in this best of all possible worlds”.3 Our baseline forecast is bullish but not Panglossian, with some lagging sectors likely to hold back growth. What better ? Well, the labor force could grow faster than expected in the baseline scenario, in which we assumed that older people who left the labor force do not return after the pandemic is over. Consumer spending, especially on durable goods, remains strong. And global growth is picking up faster, helping to support the US economy (and keep prices under control). The result: a faster recovery in 2021 and 2022 and slightly faster continued growth in the remaining years of the forecast. Of course, this isn’t quite for the best, as inflation is picking up a bit and interest rates are returning to their (higher) long-term averages.

Relapse (20%): The discovery of the Omicron variant highlights the risks COVID-19 continues to pose to the U.S. economy. New variants are constantly being found.4 In this scenario, the current vaccines are not as effective against one or more new variants. People are reverting to some social distancing and reducing their purchases of goods and services that are perceived as “risky”. This creates another one-quarter drop in GDP at the end of 2021. A moderate government response leads to bankruptcy of financially strained companies, and weak balance sheets create the conditions for a more traditional and slower recovery from recession. This is especially the case because, after two epidemics in two years, consumers are definitely cutting back on their spending on travel, entertainment, food and accommodation, requiring a painful readjustment of the economy.

Back to the 70s (15%): Households and businesses are seeing prices rise due to pandemic-related shortages and are responding by increasing prices and wages. The reaction, and the resulting rise in inflation expectations, creates an inflationary spiral. Consumer prices are rising at a constant rate of more than 5% by the end of 2022, forcing the Fed to raise interest rates to limit demand. In 2023, inflation continues, but a “growth recession” raises the unemployment rate. The Fed is reluctant to conceive of a full-blown recession and inflation is setting in at a rate of 4% over the five-year forecast horizon.


Consumer spending

The short-term outlook for consumer spending rests on two main questions:

1. Will consumers spend all these pandemic-era savings?

In 2020, households saved about US $ 1.6 trillion more than expected before the pandemic. Some of that was spent on investments, but many households now have a lot more cash on hand than they would normally like. How much will they spend as the impact of the pandemic eases? One possibility is that many consumers remain cautious and hold onto these savings even though they are able to go out and spend. Alternatively, expenses increase a little longer as Delta’s impact wanes. Deloitte’s benchmark forecast assumes a modest decline in the savings rate below its long-term level, which is enough to support very strong growth in consumer spending this year. But the expenses could be even higher if households decided to cash in more of these savings.

2. When consumer services recover, what happens to durable goods?

The pandemic has triggered a remarkable change in consumer spending habits. Spending on durable consumer goods jumped US $ 103 billion in 2020, while spending on services declined by US $ 556 billion during the same period. Households have replaced bicycles, gym equipment and electronics with restaurants, entertainment and travel. Once households can buy services again, will they start buying fewer goods? This may be the case, as spending on durable goods has fallen for six straight months ending in October. Our forecast assumes that over the next few years, spending on durable goods will continue to decline slowly, as consumers no longer need to acquire durable goods and increase the share of their income going to services.

Deloitte’s forecast assumes that spending on durable goods will continue to decline for most of the forecast horizon as consumer spending “renormalizes” and consumers shift back to spending on services. For more detailed consumer spending forecasts, see Deloitte’s consumer spending forecast, Consumer spending forecasts: services are back on track after a forgettable 2020.

Longer term, we expect the pandemic to exacerbate some existing problems. The pandemic has strained the problem of inequalities, straining the budgets and living conditions of millions of low-income households. These are the same people who are less likely to have health insurance, especially after layoffs, and more likely to have health issues that make it difficult to recover from an infection. And retirement remains a significant issue: even before the crisis, fewer than four in 10 non-retired adults described their retirement as being on track, with a quarter of non-retired adults saying they had no retirement savings. .5 Low interest rates will make Americans’ retirement readiness worse, while the stock market boom will have little impact on most people’s balance sheets.6