The Conference Board forecasts that US Real GDP growth will rise to 5.0 percent (annualized rate) in Q4 2021, vs. 2.0 percent growth in Q3 2021, and that 2021 annual growth will come in at 5.5 percent (year-over-year). Looking further ahead, we forecast that the US economy will grow by 3.5 percent (year-over-year) in 2022 and 2.9 percent (year-over-year) in 2023.
This forecast is a downgrade from our October outlook despite the recent approval of a large bipartisan infrastructure package by Congress. While this package will certainly benefit growth in 2022 and 2023, our forecasts had already assumed it would pass for several months.
The downgrade this month is due to two concerns. 1) Despite progress in the vaccination campaign we expect to see a resurgence in new cases in COVID-19 in Q1 2022 due to colder weather and more time spent indoors. This seasonal pattern was seen in early 2021 and we believe a similar, though more muted, wave of infections early next year may slow consumer spending growth. 2) We now expect the US Federal Reserve will raise policy rates earlier and more frequently than we previously anticipated. The persistence of high inflation rates and a recent rebound in hiring are likely to result in the Fed reigning in supportive policy more rapidly. While these two factors will moderate growth in 2022 and 2023, it is important to note that our projections still show robust economic expansion over the next two years.
Next year, the bulk of economic growth will be associated with continued expansion in consumer spending. However, we also expect support from business investment and, critically, a rebound in private inventories. Government spending should also grow more rapidly as money associated with the infrastructure package begins to be spent. Finally, we are also increasing our inflation outlook for H2 2022. Recent bottlenecks in supply chains, elevated demand for some goods and services, and higher energy prices appear to be more persistent than previously thought.
Presently, we have not incorporated the passage of the Administration’s Build Back Better social & climate package into our forecast. If this legislation is passed it would pose an upside risk to both our economic growth and inflation projections.
Source: The Conference Board
