Outlook for the economy today
When will the U.S. job market likely return to full health? Probably not for years. It all depends on how fast a coronavirus vaccine can be developed and distributed and how aggressively the federal government supplies more financial aid.
So says Mark Zandi, director of economic research for the forecasting firm Moody’s Analytics, who frequently delivers economic briefings for corporate boards and government policymakers. The Associated Press spoke recently with Zandi about his outlook.
The August jobs report showed that the unemployment rate dropped to 8.4%. What is this telling us?
It shows that the recovery from the pandemic is ongoing, but it is slowing and we have got a long way to go to get back to normal. It is evident that many layoffs that have occurred are becoming permanent.
So far this year, the economy has contracted at annual rates of 5% in the first quarter and a record-shattering 31.7% in the April-june quarter. What do you expect going forward?
I expect GDP in the third quarter to be up 26%. A lot of the third quarter gain will reflect the rapid re-opening of businesses in the spring. In the fourth quarter, whether we get another fiscal rescue package matters a lot. If we get a package of about $1.5 trillion, I expect fourth quarter growth of around 4%. If we get nothing out of Congress, there is a possibility that we will go back into recession.
How does next year look?
The key assumption I am making is that we don’t get a vaccine that is widely distributed until around March or April. My baseline outlook is for growth around 4% in 2021. The first quarter will be soft, but then we should be off and running as a lot of consumer pent-up demand is unleashed.
How long will it take us to regain all the jobs we have lost?
To return to full employment — an unemployment rate that is closer to 4% — that doesn’t happen until the final quarter of 2023. We are still down 11.5 million jobs. It will be tough to get millions of those jobs back.
What do you expect from the Federal Reserve?
The Fed is going to keep interest rates close to zero until late 2023.
What should investors be doing given the turbulent stock market?
For most investors, I would not pay any attention to these ups and downs. But if you are near retirement and your horizon is shorter than 10 years, then I would be cautious and get advice from a financial advisor about how much risk to take.
Will it matter to the markets who wins the presidency?
If the House remains controlled by Democrats and the Senate remains controlled by Republicans, I think the market will take that in stride. That makes it more difficult for whoever is president to make huge policy changes.