The forecast for U.S. economic recovery is improving. In March, 916,000 net new jobs were added across the nation, led by leisure and hospitality, education, and construction. The unemployment rate fell to 6.0%, and the number of unemployed dropped to 9.7 million. Overall, activity is in a much better place than the lows experienced in April 2020, though it has not yet recovered to pre-pandemic levels.
As I’ve discussed previously, one positive sign is that initial claims for state unemployment benefits have dropped to levels seen in past downturns prior to the pandemic. Initial claims are a barometer for the numbers of jobs that are disappearing, and it’s good news that they have fallen (they recently plummeted to less than 600,000). While claims remain well above pre-COVID levels, they are no longer unprecedented.
Other positive signals include the gradual opening up of more businesses as states are able to relax social distancing requirements. As long as hospitalizations remain under control and the vaccine rollout continues, a return to activities such as travel and dining out will boost the recovery. On the other hand, if variants and caseloads trend upward too far (as is occurring in some parts of the country), we could see increased uncertainty and other problems.
Additional federal spending will enhance growth potential, whether through stimulus checks or spending of other types. The Federal Reserve remains committed to keeping low interest rates until the economy reaches pre-pandemic performance, which will spur near-term expansion.
Supply chain issues continue to disrupt some industries. The pandemic caused closures of manufacturing facilities, and shortages of specific items (such as semiconductors) persist. In addition, interruptions such as the blockage of the Suez Canal and weather challenges have exacerbated the problem.
Time will be required to restore full efficiency, but this phenomenon is unlikely to dramatically constrict growth.
While obstacles remain, the U.S. economy is expected to recover and see significant progress during the next five years. The Perryman Group projects that over the 2020 to 2025 period, real gross product will expand from the current level of an estimated $18.4 trillion to $22.9 trillion, a 4.41% annual rate of growth. Employment is forecast to grow by 17.4 million to reach 160.4 million in 2025 (a 2.33% annual pace). Expansion is expected to be most robust over the next year or two as past losses are recouped (with gross product likely expanding by 7% or more in 2021), returning to more normal levels through the end of the forecast horizon.