Economy

The economy is ready to rip after stimulus and faster coronavirus vaccinations

Read more at www.marketwatch.com

A U.S. economy deeply scarred by the coronavirus is ready to rip again after getting a pair of new lifelines.

Congress is moving to give final approval to a massive $1.9 trillion stimulus, for one thing. Most Americans will get $1,400 checks while extra benefits for the unemployed will be extended, among other things.

Even more important, the pace of coronavirus vaccinations has surged to 2.2 million a day and it’s expected to keep climbing. Some 18% of Americans have received at least their first shot and most adults could be eligible by the end of May.

Flush with cash and better protected from COVID-19, Americans are likely to go out and spend more as their lives return closer to normal. Already a series of so-called mobility indicators — air travel, restaurant reservations, hotel bookings and so forth — have returned to last fall’s levels.

“A powerful boost to household spending” is coming over the next several months, said Rubeela Farooqi, chief economist of High Frequency Economics.

The burst of fresh spending, in turn, is likely to spur companies to bring back or hire more workers, drive down the unemployment rate and add even more momentum to the economy.

Wall Street is busy ratcheting up forecasts for U.S. growth to reflect the new thinking. The most bullish is Morgan Stanley — the firm now expects U.S. gross domestic product to jump 8.1% in 2021.

Most other forecasts range from 5.5% to 6.5% growth, with the Federal Reserve at the low end at 4.2%. The central bank is all but certain to raise its projection when it meets next week in Washington, D.C., to debate its next steps.

The U.S. has lots of ground to make up after devastating economic losses caused by the coronavirus. The economy shrank 3.5% in 2020 to mark the biggest decline since the end of World War II.

The economy would regain most — but not all —of its lost activity if growth reached 6.5% or higher in 2021. The last time the U.S. grew that fast was 36 years ago.

Yet what matters even more to Americans is how many people can go back to their old jobs or find new work.

A high level of unemployment one year after the start of the pandemic is clearly holding the economy back and leaving untold suffering in its wake. Some 9.5 million jobs that existed before the crisis are still missing and more than 1 million new applications for jobless benefits are being filed each week.

Officially, the unemployment rate has fallen to 6.2% from a pandemic peak of 14.8%, but it’s widely viewed as understated. It doesn’t count some 4 million-plus people who dropped out of the labor force.

Fed officials peg the real rate at closer to 10%.

A sharp rebound in hiring in February, however, is likely a preview of what’s to come. The U.S. regained 379,000 new jobs, with 465,000 added in the private sector while government employment declined. It was the biggest increase in four months.

Read: U.S. economy adds 379,000 jobs in February as hiring speeds up

“The jobs report not only indicates an early return to rehiring but further momentum for stronger hiring in coming months,” said Andrew Hollenhorst, senior economist at Citibank.

Even better, most of the hiring took place at service-oriented companies such as restaurants that have suffered deeply and shed the most jobs during the pandemic. While these may not be the highest-paying jobs, some 17 million people worked in the “leisure and hospitality” sector before the pandemic slashed employment in half.

See: A visual look at how an unfair pandemic has reshaped work and home

The economy can’t return to normal until restaurants, hotels, parks, entertainment venues and the like resume full operations. Some 3.5 million jobs haven’t come back yet.

The fresh stimulus and rising vaccination levels should give another big boost to hiring, economists say, especially for service-oriented businesses. Most expect the jobless rate to fall to around 5% by the end of the year.

Read: Inflation worries are back. Should you worry?

Deutsche Bank, the most aggressive forecaster, predicts the unemployment rate could fall to as low as 4.2%. That’s not far from the 3.5% level at the onset of the pandemic.

Yet such robust hiring still wouldn’t be enough to erase all the damage caused by the coronavirus.

“Even if payroll gains were to average 700,000 per month going forward, it would still take two years for the labor market to fully regain its pre-Covid trend,” Deutsche Bank economists wrote.

Read more at www.marketwatch.com

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