4 Predictions for 2021 in a COVID-19 World

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The Labor Market Will Not Fully Recover in 2021

Businesses will not recover to pre-pandemic revenue levels in 2021, meaning that the labor market will not completely recover. According to the Congressional Budget Office, household employment is expected to recover to 148 million in the 4th quarter of 2021. This figure is still 7% lower than in the 4th quarter of 2019. Other notable projections include the employment-to- population ratio and the unemployment rate. The anticipated employment to population ratio in 2021, 56.1%, is 5% lower than pre-pandemic levels and the projected unemployment rate, 8.6%, is double the pre-pandemic rate.

Inflation Will Fall in 2021

Currently, there is pressure on prices to fall because the public has been ordered to stop consuming certain goods and services during the lockdown. Additionally, consumers in reopened states have reduced confidence in the ability of businesses and communities to protect their health in making these purchases. Several sectors including the hotel and airline industries have experienced the largest monthly declines in the history of their indexes. Also, reduced projected demand for oil has put downward pressure on prices in the energy sector in 2021. Therefore, while supply may partially recover in 2021, the projected decline in demand for goods and services will drive prices down.

The U.S. Trade Deficit Will Be Cut in 2021.

The U.S. trade deficit is expected to decline because of faster growth in U.S. exports than imports from abroad. This is mainly because of differences in domestic demand when the U.S. is compared to key trading partners. The demand of major trading partners for U.S. exports is expected to grow faster than the U.S. demand for imports. This can be attributed to more successful policies in containing COVID-19 in Europe and Asia that has allowed them to reopen more sectors within their economies. Also, there will be fewer supply constraints and a projected weaker dollar, increasing the attractiveness of U.S. exports.

Residential Investment Will Bounce Back in 2021.

Residential investment including renovation, construction, and the costs incurred in the buying and selling of homes is currently in decline. The loss of jobs has driven the reduced demand for homes in 2020, contributing to the projected 14% decline in residential investment for the year. However, residential investment is expected to rebound significantly in 2021. Low mortgage rates and new construction will be the drivers of the recovery. New construction is expected to be 1% greater than in the last quarter of 2019 and overall, residential investment is expected to grow by 17% in 2021.

Volatile Market

Because of uncertainty over COVID-19, there are wide ranges for key economic indicators. According to the Fed, unemployment could reach 12% or drop to 4.5%, inflation could rise by 2% or just 1.1%, and the economy could grow by 7% or contract by 1%. These predictions hinge on how U.S. containment measures perform and how quickly a vaccine is developed.

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