US Economic Outlook Brightens on Vaccine News, Stimulus Talks

A family wears masks while shopping at a Walmart store in Bradford, Pa., on July 20, 2020. Brendan McDermid/Reuters

News Analysis

WASHINGTON—Promising news on the coronavirus vaccine and on stimulus talks is driving hope for a quick economic recovery. And while the growth outlook remains highly uncertain due to rising new virus cases and a difficult winter, economists continue to upgrade their U.S. economic forecasts for next year.

Last week, UK regulators gave approval to the Pfizer-BioNTech vaccine, becoming the first Western country to start its mass coronavirus vaccination program. And in the United States, the Food and Drug Administration (FDA) concluded that Pfizer’s vaccine met the predefined success criteria.

The U.S. regulator is expected to grant emergency authorization for the vaccine this week.

Congress also made progress on a COVID-19 relief bill, breaking a monthslong partisan stalemate. On Dec. 7, Senate Minority Leader Chuck Schumer (D-N.Y.) said on the Senate floor that “there are some encouraging signs” this week as a group of lawmakers from both chambers “continues to make progress” on a proposal. The group’s $908 billion coronavirus relief plan, in comparison to other plans, appears to have the most bipartisan support in Congress.

The issue of liability protection, however, remains the biggest bottleneck in the stimulus talks, as Republicans insist that businesses need a shield against COVID-19-related lawsuits.

The recent stimulus and vaccine news have boosted market confidence, with some analysts rushing to upgrade their 2021 economic forecasts.

“With negotiations over fiscal stimulus now gaining bipartisan support, we now expect agreement on a 3-month extension of emergency unemployment programs, and an enhanced unemployment benefit of $300/week, to be reached before Christmas,” Joel Prakken, chief U.S. economist of IHS Markit, said in a note on Dec. 7.

“This stimulus will more than offset the negative impact on spending of the recent surge in infections and, alongside the promising news on vaccines, led us to revise up our forecast for GDP growth in 2021 from 3.1 percent to 4.3 percent.”

News on the vaccine timeline has been increasingly positive in recent weeks, Goldman Sachs stated in a recent report. The bank’s economists are now expecting stronger growth in the first two quarters of 2021, which reflects the front-loaded effects of mass vaccine distribution. The bank lifted its 2021 annual growth forecast to 5.3 percent from 5.0 percent on Dec. 6.

And Morgan Stanley expects the U.S. economy to grow by 6 percent in 2021, well above consensus estimates.

U.S. employers added a disappointing 245,000 jobs last month, after adding 610,000 jobs in October, prompting some forecasters and media to conclude that the economic recovery is stalling.

While the private sector gained 344,000 jobs, government employment declined by 99,000, mostly driven by the loss of temporary workers who had been hired for the 2020 Census.

Despite the below-expectation jobs numbers, the unemployment rate dropped to 6.7 percent.

“While the job market is slowing, business is booming,” according to Robert Genetski, economist and president of consulting firm ClassicalPrinciples.

“The slowdown in the creation of jobs is not due to a lack of demand. Business surveys for November indicate companies are complaining of a shortage in qualified workers to fill positions,” he wrote in a note to his clients.

In another report, Genetski also commented about a strong recovery in wages, stating “the monthly peak in total wages and salaries occurred in February at $9,659 billion. October totals for all wages and salaries were at $9,576.9 billion. That’s 99 percent of the February peak.”

Finding qualified workers also is a growing problem for small-business owners. According to a November survey by the National Federation of Independent Business (NFIB), 89 percent of small-business owners reported that they had few or no qualified applicants for their open job positions.

The NFIB small business optimism index dropped 2.6 points in November to 101.4 but still remains above the 47-year historical average. The drop in optimism is driven by several uncertainties, including the upcoming Georgia runoff election and potential lockdown measures by state and local governments, according to NFIB.

Chief executives’ confidence soared, surpassing pre-pandemic levels this quarter, according to a survey of 150 executives of the largest U.S. companies. A growing number of CEOs reported that their businesses have already recovered or will recover by the end of this year.

Despite the rapid acceleration of new virus cases, consumer services spending data showed continued growth through November, according to Goldman Sachs. Due to resilient consumer spending in the midst of the virus resurgence, the bank’s economists now predict a smaller hit to the level of spending in the winter months.

The economists are also expecting a “significantly smaller virus drag on manufacturing activity this winter than in the spring,” due to several factors including strong consumer demand and lack of broader lockdowns.

“Improving economic conditions likely will lead to greater business and consumer confidence, which should drive significant corporate earnings growth in 2021,” Wells Fargo Investment Institute stated in its 2021 outlook report.

The asset manager stated its forecast continues to favor U.S. stocks over international stocks.

The report also emphasized the importance of next month’s Georgia Senate runoffs as a “split government in the U.S. would lessen the scope for potentially disruptive policy changes, better aligning recoveries on Main Street and Wall Street.”