A May 2021 outlook report from the National Association for Business Economics, based on a May 7-13 survey, finds its panelists have grown much more bullish about U.S. economic growth compared to the group’s last survey, published in March.
The NABE survey envisions an 8.5% annualized growth rate of real GDP in the second quarter of 2021 and predicts the economy will expand 6.5% this year. The latter would represent the sharpest such increase since the nation emerged 37 years ago from a deep economic recession.
Government aid programs amid the pandemic are widely attributed by panelists as a key factor in the economy’s resilience. Respondents cite Congress’ authorization of $4 trillion in pandemic relief spending last year and President Joe Biden’s March signing of a $1.9 trillion stimulus package as providing a tailwind for U.S. economic activity.
The panel also cites a rapid drop in the number of COVID-19 cases and the vaccine rollout, which in turn are increasing consumer spending, prompting the reopening of businesses and spurring hiring, as contributing to greater economic momentum in the second quarter.
Macroeconomic trend forecast
Aside from the stronger GDP – as previously stated, the May NABE report revised its median real GDP growth estimate for this year to 6.7% versus 4.8% in March -– panelists collectively envision the trends listed below.
Easing inflation: With consumer prices climbing in April by the most in a decade, economists have expressed growing concern about rising inflation pressures hampering economic growth as the recovery continues. NABE panelists now forecast inflation to be 2.8% this year and 2.3% next year, a significant increase from their previous report.
However, Survey Chair Holly Wade stated that the panelists predict that any acceleration in inflation will be brief. “Inflation expectations moved up significantly from those in the March survey, but panelists anticipate inflation easing in the second half of 2021,” said Wade.
Stronger job gains: NABE panelists are optimistic about job recovery despite employers adding only 266,000 positions in April, far fewer than expected. Most economists attributed this slowdown to hiring struggles due to a shortage of job seekers in some industries.
Two-thirds of the survey panelists now expect payroll jobs to return to pre-COVID-19 levels in 2022 or by the end of 2021. In March, the majority of panelists believed this would not happen until at least 2023.
Rising interest rates: The May NABE survey’s predicted federal funds rate, the interest rate that banks pay for overnight borrowing in the market, has not changed since the March survey. More than 80% of panelists expect the federal funds target range to stay unchanged through 2021, with an upper limit of 0.25%.
The NABE survey projects the 10-year Treasury yield will close this year at 1.90% versus its 1.45% estimate in March. The panel anticipates the yield to rise to 2.10% by year-end 2022.
Upside risks: About 35% of survey panelists view vaccine-resistant COVID-19 strains as the biggest downside risk in their latest economic forecast for 2021, citing accompanying concerns about a decrease in the number of people willing to get the vaccine and volatility in the stock market.
But the majority believe the balance of risks weighs on the positive side, with government spending programs and President Joe Biden’s $1.7 trillion infrastructure proposal pending in Congress viewed as likely economic growth drivers.