Economists went into 2021 with a sense of optimism focused on the idea of recovery. With expectations of a vaccine and the hope of a dwindling pandemic, the thought was that Americans would be primed to get back to life as normal. But things happen.
Their predictions have come true in some ways. Consumer spending and retail sales were up dramatically from 2020, the housing market is white-hot, many of the jobs lost last spring have been recovered, and we now have over 51% of the country fully vaccinated. Unfortunately though, that’s not the whole picture.
New problems and developments
- Lasting shortages: Most of us haven’t had to deal with the domino effect a pandemic can have on manufacturing, and if it’s not in the news, for many it’s out of sight, out of mind. 2020 left numerous industries with lasting shortages and backorders that are still on the mend, and in turn, contributing to inflation and reducing real GDP. What’s short? Cars, computer chips, homes, labor, miscellaneous.
- Covid variants: Most viruses mutate, but obviously not all of them have the same damage potential or scare factor that this one does. The WHO is reportedly tracking at least 13 variants, with the delta variety being the most prominent and the biggest threat considering the uncertainty surrounding the vaccine's efficacy against it. We’re not out of the woods yet, as it continues to incite fear of a lockdown or something of the sort.
- Taper talk: It’s not as if we don’t all know the Fed can’t keep rates this low forever. In fact, it’s probably a positive sign for the economic recovery that they eventually return to normal, and yet news of potentially raising rates scare investors. Higher rates mean less favorable terms for loans and less incentive for businesses to invest in growth.
Since 1947, the US has averaged 3.19% GDP growth every year. That is, until 2020, which saw growth at 2.3%. That may not sound far off, but considering the whipsaw it did throughout the year, hitting both an all-time low of -31.2% annualized in Q2 and an all-time high of 33.8% in Q3, recovery was still expected.
That being said, in light of more recent variables as the year has progressed, we’ve tapered our expectations a bit. Although some analysts started out the year with predictions as high as 10%, most have now adjusted that down by at least half. GSE Fannie Mae is calling for 6.3% growth, Goldman Sachs 5.5%, and the IMF saying 7%.