UCLA Anderson Forecast anticipates near-record U.S. growth
One year ago, the World Health Organization declared the COVID-19 outbreak a pandemic, and subsequent efforts to stop the spread of the virus led to an unprecedented decline of the U.S. economy as non-essential in-person activities came to a halt. For all of 2020, real GDP fell by 3.5%, the worst annual decline in more than 60 years.
The Anderson Forecast's December 2020 report offered hope of a strong recovery, dependent on mass vaccinations. With vaccines becoming widely available, the March 2021 forecast now anticipates such a recovery, as well as the establishment of a new post-pandemic norm for the economy.
It's sobering to realize that even though the coronavirus devastated just about every sector of the 2020 economy, it might have been much worse. Government action — through the Paycheck Protection Program, extended unemployment insurance and stimulus checks — helped preserve many employer-employee relationships and bolstered household finances, setting the stage for a rebound as vaccinations continue and the pandemic wanes.
In an essay titled "Robust Economic Growth and Recovery After a Dreadful Year," UCLA Anderson senior economist Leo Feler writes, "For the economy, a waning pandemic combined with fiscal relief means a strong year of growth in 2021 — one of the strongest years of growth in the last 60 years — followed by sustained higher growth rates in 2022 and 2023."
Following the 3.5% decline in real GDP in 2020, the national forecast calls for 6.3% growth in 2021, 4.6% growth in 2022 and 2.7% growth in 2023. These rates of growth are considerably higher than the 2.3% rate the country averaged during the recovery from the Great Recession between 2010 and 2019.
The forecast expects real GDP to surpass its 2019 peak by the end of the second quarter of 2021 and to surpass the trend it was on prior to the pandemic in early 2022.
The economists expect the unemployment rate to decline from an average of 6.7% in the last quarter of 2020 to 5.2% in the fourth quarter of 2021, 4.1% in the fourth quarter of 2022 and 3.7% in the fourth quarter of 2023.
Recovering labor force participation will slow the decline in the unemployment rate as workers who exited the labor force, including those who left for child care and home-schooling responsibilities, reenter and begin looking for work.
Feler's essay also examines the longer-term impact of the economic responses to the pandemic on the economy.
"We have embarked on a once-in-a-lifetime policy experiment to test the ability of government intervention to make even deadly pandemic-sized economic shocks a short blip in our economic history," Feler writes, noting that governments around the world ensured a "vaccine race" by guaranteeing purchases and that U.S. policies helped keep businesses afloat and maintained employer-employee relationships.
As Feler writes, "If the motto of the pandemic was to survive, the motto post-pandemic is to thrive, and because of the policies implemented to date, we're in a position to have a rapid economic recovery.
"This all means we have the opportunity to test how much we can stimulate the economy and how rapidly employment can recover without overheating the economy," Feler writes. "If real GDP goes above 'potential GDP' without generating sustained inflation, it will signal that we have been too modest in our assumptions about the productive potential of our economy …
"These next few years will help us discover if secular stagnation has been a myth we've mistakenly bought into and whether we have the capacity to grow much faster than we've done in decades." ■