GDP: Growth Estimates Keep Rising

GDP will likely grow by 6.2% or more this year because of the additional fiscal stimulus coming from Congress. Growth estimates keep rising as it becomes more apparent that a package close to the administration’s $1.9 trillion request will make it through Congress in March. The Democrats’ wins in the Georgia Senate races give them control of both Congress and the White House, though with only razor-thin control of the Senate.

As the pandemic recedes, consumers’ savings could be used to splurge on services that they have been skipping, setting up a possible boom in the service sector, beginning mid-year. The consumer savings rate was 13.7% in December, well above its normal level of 7.5%. Consumers saved 16.3% of their disposable income in 2020, and thus will have plenty of cash to boost spending on travel, dining out and other services after the pandemic is brought under control.

GDP growth of 4.1% in the fourth quarter indicated momentum for the economy at the end of last year. Consumers spent more on services, despite a COVID-related decline in eating out, and maintained the same level of goods spending. Businesses increased spending on equipment and inventories, and housing construction rose to its highest level since 2007. All of this spending worsened the trade deficit, since much of it went to imported goods.

First-quarter growth in 2021 should be around 5.5%. It is likely that the economy will regain its prepandemic level by March.

Source: Department of Commerce: GDP Data