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Is the U.S. Headed for An Economic Boom? Why Experts Are Optimistic

By March 5, 2021June 24th, 2021No Comments
coins indicating economic boom

Nearly a year after countries worldwide implemented unprecedented social distancing mandates, it’s no secret that COVID-19 wreaked historic damage on global economies. In the United States, the economy contracted by 31.4% in Q2 2020, with a staggering 20.8 million people losing their jobs in April 2020 alone. While U.S. unemployment numbers remained in double digits through Q3 2020, the economy showed signs of life towards the end of the year. 

Now, economists see a light at the end of the tunnel and evidence that the U.S. is on track for a full-fledged economic surge in 2021. 

Positive Signs for The U.S. Economic Outlook in Early 2021

Three promising developments over the start of Q1 2021 are laying the groundwork for economic optimism in the U.S.

Retail sales rose significantly in January, with the U.S. Census Bureau reporting a 5.3% increase in activity. The growth was higher than expected. At the end of 2020, economists predicted a 1.2% increase in retail sales in January. Experts attribute the better-than-expected growth to government stimulus initiatives, such as the $600 direct payment to consumers and extended unemployment benefits. 

At the same time, unemployment continued to drop. The U.S. Department of Labor reported that unemployment fell to 6.3% in January, a 0.4% decrease from December. The unemployment rate is still higher than at the beginning of the pandemic in February 2020, when the rate hovered at 3.5%. However, numbers are trending in the right direction. While approximately 22 million U.S. workers lost their jobs at the start of the pandemic, the number of unemployed Americans now sits around 10 million. 

Q1 stock market activity also indicates a recovery is imminent. In February, traders increasingly invested in sectors like financials, airlines, and industrials. Rising activity in these sectors points to an incoming period of reflation, defined as the first period of economic growth following a downturn. Financial insiders see the increased investment in these sectors as reason to believe an economic surge is just around the bend. “The boom is going to start much sooner than people think,” said Ed Keon, Chief Investment Strategist at global firm QMA. 

Why Economists Are Bullish on a Robust U.SEconomic Recovery

The strong start to the year spurred analysts to up their U.S. economic growth projections for 2021. Oxford Economics, a global economic forecast firm, expects the U.S. economy to see 7% GDP growth this year. Bank of America predicts a 6.5% growth rate. For context, U.S. GDP growth did not exceed 2.9% for any of the five years before the pandemic. 

Experts attribute the soaring projections to several emerging developments. 

Faster Vaccine Rollouts: As recently as mid-February, President Joe Biden was optimistic the U.S. would have enough vaccine supply for every American adult by the end of July. On March 2, Biden accelerated the timeline by two months, announcing the U.S. is on track to reach 600 million vaccine doses by the end of May.

The expedited timeline is a massive catalyst for economic optimism. By quickly vaccinating the population, the U.S. will soon be able to relax social distancing mandates and restore normalcy to the economy. Increased in-person activity will significantly benefit economic sectors hit hardest by the pandemic, such as tourism, leisure, and hospitality

Increased Federal Aid: While the Biden administration speeds up the U.S. vaccine rollout, it also continues to push forward a $1.9 trillion stimulus bill. The stimulus will be the second-largest in U.S. history, just behind the $2 trillion package signed into law when the pandemic began in March 2020. Once passed, the stimulus package will extend unemployment benefits and send $1,400 direct payments to Americans. As shown during January, when retail activity beat expectations thanks to government financial aid, both the direct payments and unemployment benefits will boost consumer spending power—and the U.S. economy. 

Americans Are Ready to Spend: Even before receiving new stimulus benefits, U.S. consumers have accumulated large sums of money. U.S. Commerce Department data indicates that personal income rose 10% from December to January, the second-highest increase on record. At the same time, U.S. consumers have largely refrained from traveling, dining, and paying for leisure activities over the better part of a year. Thanks to the dialed-back spending, Americans are sitting on a combined $1.6 trillion in unspent cash

The vast reservoir of capital will lead to a spending spree when the country fully reopens, according to Ellen Zentner, chief U.S. economist for Morgan Stanley. “There will be this big boom as pent-up demand comes through and the economy is opening,” Zentner said. “There is an awful lot of buying power that we’ve transferred to households to fuel that pent-up demand.”

How U.S. Companies Ride a Domestic Boom to Long-Term Growth

The rosy economic outlook has U.S. companies extremely optimistic about the coming year. According to a recent survey by the Conference Board, a non-profit think tank, U.S. CEOs are more confident about the future than they have been in 17 years. Executives expect to see higher wages and a decrease in layoffs in 2021, along with a surge in economic growth. Meanwhile, with interest rates near zero, companies can borrow money or refinance existing loans as cost-effectively as possible. 

Taking advantage of the exceptionally favorable economic conditions, forward-thinking companies seek ways to translate growth at home to new revenue streams abroad. Using increased domestic income to fund international expansion, these companies increase their global market share—and set themselves up for long-term success. That’s where Velocity Global comes in.

Our global growth experts guide companies through every stage of expansion into over 185 countries. Whether helping companies develop international strategies, expedite global hiring, or enable the quick testing of new foreign markets, Velocity Global provides a turnkey expansion solution for companies looking to go global. Reach out today to find out how we can help your company turn a U.S. boom into sustained international growth.