–For 2021 ‘A Dramatic Improvement From the October Survey’
WASHINGTON (MaceNews) – Members of the National Association for Business Economics Monday were of at least two minds about several pandemic related metrics, on the one hand taking a somewhat optimistic view that despite the virus surge, growth would only moderate, not tank in the near term, while most didn’t see the worsening medical picture as a reason to downgrade their forecasts — seemingly a reflection of the uncertainty that makes forecasting in this environment nearly impossible.
However the latest survey of 48 members found a dramatic improvement in the outlook for next year even though fewer than half thought the incoming Biden administration would improve confidence and more than half did not think the advent of effective vaccines would be a big positive factor. So while bad news wasn’t so bad and good news wasn’t so good, the mosaic of opinions saw better times not so far away even though many of the details seemed to fall short of a coherent consensus.
The following is the NABE’s summary of findings along with point-by-point bullet points:
SUMMARY: “The NABE Outlook panel anticipates more moderate growth in economic activity going forward after the sharp rebound during the third quarter,” said NABE President Manuel Balmaseda, CBE, chief economist, CEMEX. “The median forecast calls for a 4.1% annualized growth rate in the fourth quarter of 2020 for inflation-adjusted gross domestic product, or real GDP. In addition to the 33.1% GDP growth in the third quarter of the year, this would reverse much of the 32% annualized decline from the second quarter.
However, the panel has become slightly less bullish about 2021. The median real GDP growth estimate for 2021 is 3.4%, slightly less than the 3.6% forecasted in the October survey. “NABE panelists have become more optimistic, on balance, with nearly one-third revising their outlook higher based on recent news of effective vaccines,” added Survey Chair Holly Wade, executive director, NFIB Research Center. “Seventy-three percent of panelists believe that the economy will have returned to pre-pandemic GDP levels by the second half of 2021, 18% expect it to reach that level in the first half of 2022, and 10% believe it will occur in the second half of 2022 or later.
The 73% is a dramatic improvement from the October survey in which 38% of panelists believed that a full recovery would occur before 2022.“Just over one-third of respondents anticipate more downside risk to economic growth in 2021,” continued Wade. “Panelists point to a second wave of COVID-19 cases as their main concern.”
Highlights:
• After the dramatic rebound in inflation-adjusted gross domestic product (real GDP) during the third quarter (Q3 2020) of 33.1%, quarter-over-quarter (q/q) annualized, panelists anticipate more moderate economic growth. The median expected growth for Q4 2020 is 4.1%, q/q annualized, followed by 2.9% growth in Q1 2021.
• The median forecast for the change in real GDP from Q4 2019 to Q4 2020 is -2.6%. The median real GDP growth estimate for 2021 is 3.4%, compared to 3.6% in the October survey. •On an annual average basis, the panel expects real GDP to decline 3.5% in 2020, but then to increase 3.8% in 2021.
• The views of the panelists regarding risks to growth are a bit more balanced in the December survey compared to the previous survey. Thirty-seven percent still see the balance of risks to economic growth through 2021 skewed to the downside, 24% indicate risks are weighted to the upside, and 37% report that risks are weighted to “neither” the upside or downside.
• Seventy-three percent of panelists anticipate that the economy will return to pre-pandemic GDP levels by the second half of 2021; only 5% suggest this will occur before the end of 2020, 8% expect GDP will recover in the first half of 2021, and 60% anticipate such a return in the second half of 2021. Eighteen percent of respondents expect GDP to reach pre-pandemic levels in the first half of 2022, and 10% project this will occur in the second half of 2022 or later.
• More than three-quarters (78%) of respondents consider a COVID-19 vaccine as the greatest upside risk to economic growth, while only 2% think a successful test-and-trace policy could deliver an upside surprise. Twelve percent indicate that a large fiscal stimulus program could lead to upside surprises to the outlook, and 5% see stronger global growth as the greatest upside risk.
• A second wave of COVID-19 remains the most-often-cited answer as the greatest downside risk to economic growth, with 57% of respondents holding this view. Fiscal policy inaction is cited by 27% of panelists as the top downside risk. Other downside risks include continued high unemployment insurance claims (selected as the top downside risk by 7% of respondents), a widening federal deficit (2%), and an increasing number of bankruptcies (2%).
• A large majority (68%) of panelists puts the odds of a “double-dip” recession at less than 30%. Only 5% place the odds of a double dip recession at 50% or higher.
• Expectations for 10-year Treasury yields have risen slightly since the October survey. The median response calls for the yield to close 2020 at 0.84%. Yields are expected to rise modestly – to 1.15% – by year-end 2021. This represents a small uptick from the median expectation of 1.10% for year-end 2021 in the October survey.
• A vast majority of panelists (88%) expects the federal funds rate to remain where it currently stands through 2021, with an upper limit of 0.25%. Nine percent expect the rate to increase, while 2% anticipate the rate will be at 0% or lower at the end of 2021.
• The outlook for real residential investment is substantially more optimistic in the December survey. The median 2020 forecast calls for 4.4% growth, compared to a 1.1% increase in the October survey. Real residential investment growth is expected to accelerate to 6.8% in 2021.
• The panel expects real business inventories to be a drag on GDP growth this year, with the median forecast calling for a decline of $83 billion in 2020, after rising $49 billion in 2019. Inventories are anticipated to boost GDP growth in 2021, rising $54 billion next year.
• Real federal, state, and local government consumption expenditures and gross investment are expected to increase by a combined 1.2% in 2020, down from the actual 2.3% growth in 2019. The panel’s median expectation decreased from 1.8% in the October survey. Respondents anticipate government spending growth to slow to 0.2% in 2021, down from 0.8% forecasted in the October survey
• Panelists expect the euro to steady around $1.18 in December 2020, up from $1.11 in December 2019. The euro is then anticipated to stabilize around $1.18 in December 2021.•The federal deficit is expected to narrow from $3.13 trillion in fiscal year 2020 to $2.19 trillion in fiscal year 2021, slightly higher than the $1.98 trillion median forecasted in October.
• Industrial production is expected to contract by 7.1% in 2020, slightly less than the October projection of a 7.6% contraction. The outlook for 2021 calls for industrial production to expand by 4.4%, in line with the October survey estimate of 4.3%.
• The median projection for monthly nonfarm payroll employment in 2020 is for a decline of 681,000, on average – a larger decrease than in the previous survey in which expectations were for a decline of 670,000 million per month. The median forecast for average monthly job gains in 2021 is 387,000, up from the 350,000 projected in the October survey.
• The median forecast calls for the unemployment rate to average 8.1% in 2020, 0.3 percentage points lower than the median forecast in the previous survey. Panelists expect the unemployment rate to decline each quarter, averaging 6.3% in 2021, compared with the 6.8% previously forecasted. The unemployment rate averaged 3.7% in 2019.
• Panelists anticipate that productivity growth will improve this year. The median forecast calls for productivity growth – as measured by real nonfarm business output per hour – of 2.8% in 2020, higher than the 1.8% anticipated in the previous survey. Panelists anticipate labor productivity growth to slow to 1.7% in 2021, the same pace as in 2019.•Nonfarm business compensation is projected to increase 5.4% in 2020. The forecast for 2020 is up strongly from 3.6% in 2019, and from the previous estimate of 4.7% in the October survey. Panelists anticipate nonfarm business compensation growth to slow to 2.2% in 2021.
• Consumer spending, as measured by real personal consumption expenditures (PCE), is forecasted to decline 3.8% in 2020, better than the expectations reported in the October survey, which called for a 4.6% decline. Respondents expect consumption to rise 4.6% in 2021, compared to a median expectation of 4.0% growth in the previous survey. Real PCE increased 2.4% in 2019
• The median forecast for new light vehicle sales in 2020 is a total of 14.5 million units, better than the projection in the previous survey, which called for sales to total 14.1 million units. Panelists anticipate vehicle sales to rebound in 2021, totaling 16.1 million units- however, that remains below the actual 17 million units sold in 2019.
• Panelists look for business investment to decrease sharply this year. Real nonresidential fixed investment is forecasted to decline 4.8%. Panelists anticipate real nonresidential fixed investment to rise only gradually in 2021, increasing 3.7%
• Panelists forecast homebuilding will accelerate from the 1.29 million starts in 2019 to a pace of 1.35 million starts in 2020, and then step up to a 1.41 million pace in 2021.
• Existing-home prices, as measured by the Federal Housing Finance Agency (FHFA) house price index, are expected to increase 5.0% between Q4 2019 and Q4 2020, and 4.0% in 2021. The projections are both above the June survey forecasts, but short of the actual 5.1% increase in 2019.
• Survey respondents expect inflation – as measured by the GDP price index – to be lower in 2020 than in 2019. Inflation is forecasted to be 1.2% in 2020 and 1.8% in 2021. The index increased 1.8% in 2019. Panelists expect similar increases in inflation in 2021 as measured by the consumer price index (CPI) and the personal consumption expenditures (PCE) price index.
• The median forecast calls for the price of West Texas Intermediate (WTI) crude oil to average $41 per barrel in December 2020 and $46 per barrel in December 2021. The price averaged $60 in December 2019. •Panelists expect corporate profits to contract by 9.8% in 2020. The median forecast calls for profits to increase by 9.5% in 2021.
• Sixty-nine percent of panelists indicate that up to 5% of jobs will be permanently lost due to the health crisis. The remaining 31% of respondents anticipate between 5% and 10% of job losses will be permanent.
• Thirty-five percent of panelists indicate that between $1.0 and $1.9 trillion of additional stimulus might be needed to get U.S. real GDP back to its pre-COVID peak. Twenty-six percent of panelists anticipate less than $1.0 trillion of additional stimulus could be required, while 27% report between $2.0 and $2.9 trillion could be necessary. Only 4% of respondents suggest that $3.0 trillion or more of additional stimulus might be needed to achieve the pre-COVID peak.
• The majority (80%) of panelists has not changed their outlook for 2021 GDP growth in response to the results of the U.S. election. Ten percent of panelists indicate they have revised their 2021 GDP growth outlook lower in response to the U.S. election outcome, and 7% of respondents report they have revised their 2021 GDP growth outlook higher.
• Fifty-three percent of panelists do not expect Congress to pass a fiscal relief package before year-end. The views of the remaining respondents are essentially split, with 25% anticipating a fiscal relief package will pass by the end of the year, and 23% unsure whether a package will pass.
• Two-thirds (67%) of panelists expect the incoming Biden administration to roll back tariffs significantly, including 48% who don’t expect that a rollback would change the growth outlook significantly. Only 17% of all panelists expect the rollback of tariffs to generate stronger growth.
• Fifty-seven percent of panelists have made no changes to their economic outlook despite the recent nationwide increase in COVID-19 infections. Forty percent of respondents have revised their economic outlook lower.
• Sixty-nine percent of panelists have not revised their economic outlook with the recent announcement of an effective vaccine. The remaining 31% have revised their outlook higher.
• Forty-one percent of panelists expect the incoming Biden administration will have a positive effect on private-sector confidence, and 44% of respondents expect a neutral effect. Only 7% of panelists anticipate that the new administration will have a negative effect, while another 7% are unsure.
• More than three-fourths (76%) of panelists do not believe that actions by the Federal Reserve can prevent an economic slowdown in the absence of near-term fiscal aid.
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