Three Reasons to Expect a Significant Rebound in the US Economy

The pandemic continues to weigh on the US economy. However, with a recently-passed third-round stimulus, more vaccines being distributed and states beginning to reopen, we expect a significant economic rebound quicker than originally anticipated. We believe we will see meaningful economic pick-up start late in the first quarter and continue throughout the second quarter and beyond.

There are three key reasons for our optimistic growth outlook for the US economy:

#1: The US will be successful in rolling out an effective vaccine

With more than 100 million doses of the vaccine administered today and a vaccine available for every American adult by the end of May, we believe the U.S. will be able to effectively reach herd immunity this year, conservatively, by Q3. This should spur more state reopenings over the next several months, accelerating the economic rebound currently underway.

While we feel confident about this outlook, the most significant headwind will not be supply or distribution; it will be those individuals who are eligible and choose not to get the vaccine. Based on a recent Gallup survey, only 68 percent of people in the U.S would be willing to receive an FDA-approved Covid-19 vaccine. This sentiment is a considerable improvement from earlier this year, but if this number remains too large, it could cause a delay in the herd immunity process.

Another growing concern is mutation of the virus. How effective the vaccines will be in controlling the virus’s various mutations is still to be determined.

#2: We’re expecting policymakers in Washington to continue providing a safety net for the US economy despite the risk of higher inflation.

There have now been three extensive relief packages that have included checks to individuals, additional benefits for the unemployed, and much-needed support to small businesses through the paycheck protection program. In addition the Federal Reserve remains highly accommodative with expected short-term interest rates near 0% through 2023.

Some people are concerned with continued deficit spending, and while it is very likely we will see higher taxes that will fall primarily on corporations and higher-wage earners, it will most likely not be until the end of the year and not as substantial as feared.

As the economy strengthens, many worry about increased inflation. However, inflation will only occur if several outcomes are met, including reopening the economy fully as we continue to overcome the impacts of Covid-19, unemployment falls materially in areas that have been hit hardest by the pandemic, and economic growth accelerates for an extended period. These are all positive things, and if they do occur will benefit the economy.

#3: The US economy has already rebounded from panic territory

As the economy starts to open up in more areas, the job market will continue its impressive recovery. Increasing incomes coupled with stimulus support will help bolster consumer spending. Also, people have been saving more than ever before, whether it be due to a panic response from the recent economic hardship, or just saving on commuting costs or entertainment expenses. Needless to say, there is an unprecedented amount of liquidity in today’s economy, and we expect consumers and businesses alike to put that capital to work in 2021.

We should also consider the economic sectors that have been hit the hardest – leisure, hospitality, airlines, and the like. While areas like tech and online retail had a banner year in 2020, we believe these more cyclical areas will experience the quickest rebound in 2021. We anticipate a shift from buying things towards spending money on real-life experiences this year. Consumers have been stuck at home with pent-up demand for travel and entertainment for nearly a year now. As the vaccine rolls out, people will feel more comfortable getting on airplanes, sitting in a restaurant with others and attending concerts and sports events.

That said, we still believe tech and online retail are here to stay. Even after the economy opens fully, we believe we will see the continuing secular shift from brick-and-mortar retail to online sales. We will see businesses continue using productivity enhancement tools like online meetings and virtual events as well.

Combined, a continued effort to administer as many vaccines as possible and accommodative monetary policy will serve as a strong platform for a continued economic rebound in 2021. We believe these factors will eventually lead to an improved job market and spending power in the hands of consumers who have benefitted from savings and low-interest rates and are eager to embrace pre-pandemic activities.

Written by Brian Henderson, Chief Investment Officer, BOK Financial. Have you read?
Best Hospitality And Hotel Management Schools In The World For 2021.
Best Fashion Schools In The World For 2021.
Best Business Schools In The World For 2021.
Best Medical Schools In The World For 2021.
Ways to Grow Your Revenue by Expanding Sales and Visibility on Amazon.
Follow CEOWORLD magazine on Facebook, Twitter, Instagram, and LinkedIn.