What will the US economic recovery look like?

WASHINGTON: The US economy is rebounding faster than expected from the Covid-19 recession, outperforming the most pessimistic estimates.

But some areas remain largely shut down. So what will recovery look like?

The International Monetary Fund estimates the gross domestic product (GDP) of the US will expand by 5.1 per cent this year, after contracting by 3.5 per cent in 2020 as the pandemic forced lockdowns that shuttered businesses nationwide.

But economists think the growth rate could accelerate further.

The nearly US$3 trillion in government stimulus programmes last year, including a US$900 billion measure approved in late December, were key to helping the US economy bounce back.

Congress is moving toward approving President Joe Biden’s US$1.9 trillion rescue package, which will provide more support for businesses, families and state and local jobs.

Federal Reserve chair Jerome Powell acknowledged growth could hit six per cent, while private forecasters like Gregory Daco of Oxford Economics said it could break seven per cent.

The quick recovery has raised concerns that price increases could spiral higher, but Powell tamped down those fears, saying inflationary spikes in coming months are unlikely to last.

The Fed has pledged to keep interest rates low until employment recovers and inflation stays above two per cent for some time.

As businesses were able to reopen and adapt to new Covid-19 restrictions, the country regained about half of the 20 million jobs lost in the early weeks of the pandemic.

Many of the remaining 10 million jobs are in the hardest-hit service sectors like hotels and restaurants – losses that fell especially hard on Black and Hispanic workers. And millions more have seen their hours cut or have left the labor force entirely, including large numbers of women who are taking care of children.

Those jobs and hours likely will not come back until the vaccine rollout reaches a critical mass of Americans, allowing people to resume normal activities without fear so businesses and schools can fully reopen.

The official unemployment rate – known as U-3 – hit 6.3 per cent in January, a dramatic worsening from 3.5 per cent a year earlier. For Black workers the rate was 9.2 per cent.

But when including individuals who have been discouraged from looking for work, or who are working part-time but want a full-time position, the broader U-6 rate was 11.1 per cent.

“The aid and stimulus are critical to bridging Covid-tainted waters, stemming employment losses ... and priming the pump for a more robust recovery once social distancing measures are lifted,” economist Diane Swonk of Grant Thornton said.

Moody’s Analytics estimates Biden’s stimulus plan would create 7.5 million jobs this year alone.

The housing market, strong before the pandemic, paused only briefly before roaring back hotter than before.

Fueled by rock-bottom mortgage rates – and with remote work perhaps starting a trend of people moving out of congested areas -- sales of new and existing homes have jumped about 20 per cent above the pre-pandemic level.