The nation should have a lot to celebrate in the coming months. Most economists are busily raising their forecasts for growth for the remainder of the year. If their forecasts are accurate, Americans can expect a booming economy this year and into 2022.
The arguments for growth are straightforward. The number of Americans that are being vaccinated is now higher than the number of new coronavirus cases. By the end of May 2021, if government forecasts are correct, almost everyone in the U.S. that wants a vaccination should have one. As a result, we can expect to see a re-opening of most businesses no later than the second half of the year. That, in turn, should lead to a rapid hike in economic activity.
But what will really spark the coming boom for the nation’s economy is the $1.9 trillion American Relief Plan. The bill has just passed Congress and, according to the Biden Administration, money will start flowing into the pockets of those Americans who have suffered the most in the past year.
As a result, economic growth is expected to be the strongest since 1984. The latest consensus numbers of 76 economists are looking for Gross Domestic Product to rise by an annualized 5.6% in the second quarter, followed by 6.2% in the third quarter. Some see the economy jumping by as much as 10% between April and June.
The engines of growth are expected to be a combination of business investment and consumer spending on everything from airlines to restaurants. Throughout the last year, Americans that could, have saved as much as 20% of their total income. That brings the total savings amount for the month of January to $4 trillion. Some of that savings is expected to find its way into the economy as pent-up demand comes to the forefront. If you combine that with additional fiscal spending, we have what could be a perfect storm of demand for goods and services.
Recent manufacturing data from the Institute for Supply Management revealed that the sector had logged its highest growth level since August 2018. Personal income surged 10% in January, while household wealth increased nearly $2 trillion for that month.
Recently, many market participants have jumped on the inflation bandwagon figuring that all this demand coupled with the central bank’s loose monetary policies will trigger a higher rate of inflation. The Federal Reserve Bank has already said that they would be willing to allow inflation to rise to something above their long-stated ceiling of 2%. I expect that 2% rate should be achieved sometime in the next few months if economic growth is close to the forecast. Unfortunately, it will take job growth much longer to recover. Full employment could take years to accomplish.
None of these economic forecasts consider the possibility of an infrastructure program later on this year. The numbers talked about today are about equal to the amount of the $1.9 trillion relief package. Estimates that, at the minimum, such a program could mean another $2 trillion or more would surely boost the economy further into next year.
But, unlike the Democrat-sponsored and passed American Relief Bill, a meaningful infrastructure effort would require a bi-partisan effort. Politics has been the death knell in just about every past attempt at fixing the nation’s roads, bridges and airports. Given the present state of uncertainty and division within and between both parties, the chances of that happening are neutral at best. But for the nation’s sake, we can always hope.